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Introduction

The banking section will navigate through all the aspects of the Banking System in India. It will
discuss upon the matters with the birth of the banking concept in the country to new players
adding their names in the industry in coming few years.

The banker of all banks, Reserve Bank of India (RBI), the Indian Banks Association (IBA) and
top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc. has been well defined under three
separate heads with one page dedicated to each bank.

However, in the introduction part of the entire banking cosmos, the past has been well explained
under three different heads namely:
• History of Banking in India
• Nationalisation of Banks in India
• Scheduled Commercial Banks in India
The first deals with the history part since the dawn of banking system in India. Government took
major step in the 1969 to put the banking sector into systems and it nationalised 14 private
banks in the mentioned year. This has been elaborated in Nationalisationof Banks in India. The
last but not the least explains about the scheduled and unscheduled banks in India. Section 42
(6) (a) of RBI Act 1934 lays down the condition of scheduled commercial banks. The description
along with a list of scheduled commercial banks are given on this page.

Public Sector Banks In India


Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks
which were nationalised on July 19, 1969. Its predecessor, in the Public Sector Banks, the
United Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla
Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd.
(1922) and Hooghly Bank Ltd. (1932).

Oriental Bank of Commerce (OBC), a Governmet of India Undertaking offers Domestic, NRI and
Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Dehradun
District (UP) and Hanumangarh District (Raiasthan) disbursing small loans. This Public Secotor
Bank India has implemented 14 point action plan for strengthening of credit delivery to women
and has designated 5 branches as specialized branches for women entrepreneurs.

The following are the list of Public Sector Banks in India


• Allahabad Bank
• Andhra Bank
• Bank of Baroda
• Bank of India
• Bank of Maharastra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• IDBI Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab & Sind Bank
• Punjab National Bank
• Syndicate Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank

List of State Bank of India and its subsidiary, a Public Sector Banks
• State Bank of India
○ State Bank of Bikaner & Jaipur
○ State Bank of Hyderabad
○ State Bank of Indore
○ State Bank of Mysore
○ State Bank of Saurastra
○ State Bank of Travancore

Banking services in India


• With years, banks are also adding services to their customers. The Indian banking
industry is passing through a phase of customers market. The customers have more
choices in choosing their banks. A competition has been established within the banks
operating in India.

With stiff competition and advancement of technology, the services provided by banks
has become more easy and convenient. The past days are witness to an hour wait
before withdrawing cash from accounts or a cheque from north of the country being
cleared in one month in the south.

This section of banking deals with the latest discovery in the banking instruments along
with the polished version of their old systems.

Financial and Banking Sector Reforms


The last decade witnessed the maturity of India's financial markets. Since 1991, every
governments of India took major steps in reforming the financial sector of the country. The
important achievements in the following fields is discussed under serparate heads:

• Financial markets
• Regulators
• The banking system
• Non-banking finance companies
• The capital market
• Mutual funds
• Overall approach to reforms
• Deregulation of banking system
• Capital market developments
• Consolidation imperative
Now let us discuss each segment seperately.

Financial Markets

In the last decade, Private Sector Institutions played an important role. They grew rapidly in
commercial banking and asset management business. With the openings in the insurance
sector for these institutions, they started making debt in the market.

Competition among financial intermediaries gradually helped the interest rates to decline.
Deregulation added to it. The real interest rate was maintained. The borrowers did not pay high
price while depositors had incentives to save. It was something between the nominal rate of
interest and the expected rate of inflation.

Regulators

The Finance Ministry continuously formulated major policies in the field of financial sector of the
country. The Government accepted the important role of regulators. The Reserve Bank of India
(RBI) has become more independant. Securities and Exchange Board of India (SEBI) and the
Insurance Regulatory and Development Authority (IRDA) became important institutions.
Opinions are also there that there should be a super-regulator for the financial services sector
instead of multiplicity of regulators.

The banking system

Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still
dominating the commercial banking system. Shares of the leading PSBs are already listed on
the stock exchanges.

The RBI has given licences to new private sector banks as part of the liberalisation process.
The RBI has also been granting licences to industrial houses. Many banks are successfully
running in the retail and consumer segments but are yet to deliver services to industrial finance,
retail trade, small business and agricultural finance.

The PSBs will play an important role in the industry due to its number of branches and foreign
banks facing the constrait of limited number of branches. Hence, in order to achieve an efficient
banking system, the onus is on the Government to encourage the PSBs to be run on
professional lines.

Development finance institutions


FIs's access to SLR funds reduced. Now they have to approach the capital market for debt and
equity funds.

Convertibility clause no longer obligatory for assistance to corporates sanctioned by term-


lending institutions.

Capital adequacy norms extended to financial institutions.

DFIs such as IDBI and ICICI have entered other segments of financial services such as
commercial banking, asset management and insurance through separate ventures. The move
to universal banking has started.

Non-banking finance companies

In the case of new NBFCs seeking registration with the RBI, the requirement of minimum net
owned funds, has been raised to Rs.2 crores.

Until recently, the money market in India was narrow and circumscribed by tight regulations over
interest rates and participants. The secondary market was underdeveloped and lacked liquidity.
Several measures have been initiated and include new money market instruments,
strengthening of existing instruments and setting up of the Discount and Finance House of India
(DFHI).

The RBI conducts its sales of dated securities and treasury bills through its open market
operations (OMO) window. Primary dealers bid for these securities and also trade in them. The
DFHI is the principal agency for developing a secondary market for money market instruments
and Government of India treasury bills. The RBI has introduced a liquidity adjustment facility
(LAF) in which liquidity is injected through reverse repo auctions and liquidity is sucked out
through repo auctions.

On account of the substantial issue of government debt, the gilt- edged market occupies an
important position in the financial set- up. The Securities Trading Corporation of India (STCI),
which started operations in June 1994 has a mandate to develop the secondary market in
government securities.

Long-term debt market: The development of a long-term debt market is crucial to the financing
of infrastructure. After bringing some order to the equity market, the SEBI has now decided to
concentrate on the development of the debt market. Stamp duty is being withdrawn at the time
of dematerialisation of debt instruments in order to encourage paperless trading.

The capital market

The number of shareholders in India is estimated at 25 million. However, only an estimated two
lakh persons actively trade in stocks. There has been a dramatic improvement in the country's
stock market trading infrastructure during the last few years. Expectations are that India will be
an attractive emerging market with tremendous potential. Unfortunately, during recent times the
stock markets have been constrained by some unsavoury developments, which has led to retail
investors deserting the stock markets.
Mutual funds

The mutual funds industry is now regulated under the SEBI (Mutual Funds) Regulations, 1996
and amendments thereto. With the issuance of SEBI guidelines, the industry had a framework
for the establishment of many more players, both Indian and foreign players.

The Unit Trust of India remains easily the biggest mutual fund controlling a corpus of nearly
Rs.70,000 crores, but its share is going down. The biggest shock to the mutual fund industry
during recent times was the insecurity generated in the minds of investors regarding the US 64
scheme. With the growth in the securities markets and tax advantages granted for investment in
mutual fund units, mutual funds started becoming popular.

The foreign owned AMCs are the ones which are now setting the pace for the industry. They are
introducing new products, setting new standards of customer service, improving disclosure
standards and experimenting with new types of distribution.

The insurance industry is the latest to be thrown open to competition from the private sector
including foreign players. Foreign companies can only enter joint ventures with Indian
companies, with participation restricted to 26 per cent of equity. It is too early to conclude
whether the erstwhile public sector monopolies will successfully be able to face up to the
competition posed by the new players, but it can be expected that the customer will gain from
improved service.

The new players will need to bring in innovative products as well as fresh ideas on marketing
and distribution, in order to improve the low per capita insurance coverage. Good regulation will,
of course, be essential.

Overall approach to reforms

The last ten years have seen major improvements in the working of various financial market
participants. The government and the regulatory authorities have followed a step-by-step
approach, not a big bang one. The entry of foreign players has assisted in the introduction of
international practices and systems. Technology developments have improved customer
service. Some gaps however remain (for example: lack of an inter-bank interest rate
benchmark, an active corporate debt market and a developed derivatives market). On the
whole, the cumulative effect of the developments since 1991 has been quite encouraging. An
indication of the strength of the reformed Indian financial system can be seen from the way India
was not affected by the Southeast Asian crisis.

However, financial liberalisation alone will not ensure stable economic growth. Some tough
decisions still need to be taken. Without fiscal control, financial stability cannot be ensured. The
fate of the Fiscal Responsibility Bill remains unknown and high fiscal deficits continue. In the
case of financial institutions, the political and legal structures hve to ensure that borrowers repay
on time the loans they have taken. The phenomenon of rich industrialists and bankrupt
companies continues. Further, frauds cannot be totally prevented, even with the best of
regulation. However, punishment has to follow crime, which is often not the case in India.

Deregulation of banking system

Prudential norms were introduced for income recognition, asset classification, provisioning for
delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy
norms, substantial capital were provided by the Government to PSBs.

Government pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash
reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides
almost entirely were deregulated.

New private sector banks allowed to promote and encourage competition. PSBs were
encouraged to approach the public for raising resources. Recovery of debts due to banks and
the Financial Institutions Act, 1993 was passed, and special recovery tribunals set up to
facilitate quicker recovery of loan arrears.

Bank lending norms liberalised and a loan system to ensure better control over credit
introduced. Banks asked to set up asset liability management (ALM) systems. RBI guidelines
issued for risk management systems in banks encompassing credit, market and operational
risks.

A credit information bureau being established to identify bad risks. Derivative products such as
forward rate agreements (FRAs) and interest rate swaps (IRSs) introduced.

Capital market developments

The Capital Issues (Control) Act, 1947, repealed, office of the Controller of Capital Issues were
abolished and the initial share pricing were decontrolled. SEBI, the capital market regulator was
established in 1992.

Foreign institutional investors (FIIs) were allowed to invest in Indian capital markets after
registration with the SEBI. Indian companies were permitted to access international capital
markets through euro issues.

The National Stock Exchange (NSE), with nationwide stock trading and electronic display,
clearing and settlement facilities was established. Several local stock exchanges changed over
from floor based trading to screen based trading.

Private mutual funds permitted

The Depositories Act had given a legal framework for the establishment of depositories to
record ownership deals in book entry form. Dematerialisation of stocks encouraged paperless
trading. Companies were required to disclose all material facts and specific risk factors
associated with their projects while making public issues.

To reduce the cost of issue, underwriting by the issuer were made optional, subject to
conditions. The practice of making preferential allotment of shares at prices unrelated to the
prevailing market prices stopped and fresh guidelines were issued by SEBI.

SEBI reconstituted governing boards of the stock exchanges, introduced capital adequacy
norms for brokers, and made rules for making client or broker relationship more transparent
which included separation of client and broker accounts.

Buy back of shares allowed


The SEBI started insisting on greater corporate disclosures. Steps were taken to improve
corporate governance based on the report of a committee.

SEBI issued detailed employee stock option scheme and employee stock purchase scheme for
listed companies.

Standard denomination for equity shares of Rs. 10 and Rs. 100 were abolished. Companies
given the freedom to issue dematerialised shares in any denomination.

Derivatives trading starts with index options and futures. A system of rolling settlements
introduced. SEBI empowered to register and regulate venture capital funds.

The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating new credit rating
agencies as well as introducing a code of conduct for all credit rating agencies operating in
India.

Consolidation imperative

Another aspect of the financial sector reforms in India is the consolidation of existing institutions
which is especially applicable to the commercial banks. In India the banks are in huge quantity.
First, there is no need for 27 PSBs with branches all over India. A number of them can be
merged. The merger of Punjab National Bank and New Bank of India was a difficult one, but the
situation is different now. No one expected so many employees to take voluntary retirement
from PSBs, which at one time were much sought after jobs. Private sector banks will be self
consolidated while co-operative and rural banks will be encouraged for consolidation, and
anyway play only a niche role.

In the case of insurance, the Life Insurance Corporation of India is a behemoth, while the four
public sector general insurance companies will probably move towards consolidation with a bit
of nudging. The UTI is yet again a big institution, even though facing difficult times, and most
other public sector players are already exiting the mutual fund business. There are a number of
small mutual fund players in the private sector, but the business being comparatively new for
the private players, it will take some time.

We finally come to convergence in the financial sector, the new buzzword internationally. Hi-
tech and the need to meet increasing consumer needs is encouraging convergence, even
though it has not always been a success till date. In India organisations such as IDBI, ICICI,
HDFC and SBI are already trying to offer various services to the customer under one umbrella.
This phenomenon is expected to grow rapidly in the coming years. Where mergers may not be
possible, alliances between organisations may be effective. Various forms of bancassurance
are being introduced, with the RBI having already come out with detailed guidelines for entry of
banks into insurance. The LIC has bought into Corporation Bank in order to spread its insurance
distribution network. Both banks and insurance companies have started entering the asset
management business, as there is a great deal of synergy among these businesses. The
pensions market is expected to open up fresh opportunities for insurance companies and
mutual funds.

It is not possible to play the role of the Oracle of Delphi when a vast nation like India is involved.
However, a few trends are evident, and the coming decade should be as interesting as the last
one.

Reserve Bank of India (RBI)


Kindly Take Note : Reserve Bank of India (RBI) is the central bank of the country and is different
from Central Bank of India.

RBI Governor announces Mid-term Review of Annual Policy for 2006-07

The central bank of the country is the Reserve Bank of India (RBI). It was established in April
1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton
Young Commission. The share capital was divided into shares of Rs. 100 each fully paid which
was entirely owned by private shareholders in the begining. The Government held shares of
nominal value of Rs. 2,20,000.

Reserve Bank of India was nationalised in the year 1949. The general superintendence and
direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor
and four Deputy Governors, one Government official from the Ministry of Finance, ten
nominated Directors by the Government to give representation to important elements in the
economic life of the country, and four nominated Directors by the Central Government to
represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New
Delhi. Local Boards consist of five members each Central Government appointed for a term of
four years to represent territorial and economic interests and the interests of co-operative and
indigenous banks.

The Reserve Bank of India Act, 1934 was commenced on April 1, 1935. The Act, 1934 (II of
1934) provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following:


• To regulate the issue of banknotes
• To maintain reserves with a view to securing monetary stability and
• To operate the credit and currency system of the country to its advantage.

Functions of Reserve Bank of India

The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank the
Reserve Bank of India.

Bank of Issue

Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank
notes of all denominations. The distribution of one rupee notes and coins and small coins all
over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve
Bank has a separate Issue Department which is entrusted with the issue of currency notes. The
assets and liabilities of the Issue Department are kept separate from those of the Banking
Department. Originally, the assets of the Issue Department were to consist of not less than two-
fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less
than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee
coins, Government of India rupee securities, eligible bills of exchange and promissory notes
payable in India. Due to the exigencies of the Second World War and the post-was period,
these provisions were considerably modified. Since 1957, the Reserve Bank of India is required
to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115
crores should be in gold. The system as it exists today is known as the minimum reserve
system.

Banker to Government

The second important function of the Reserve Bank of India is to act as Government banker,
agent and adviser. The Reserve Bank is agent of Central Government and of all State
Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the
obligation to transact Government business, via. to keep the cash balances as deposits free of
interest, to receive and to make payments on behalf of the Government and to carry out their
exchange remittances and other banking operations. The Reserve Bank of India helps the
Government - both the Union and the States to float new loans and to manage public debt. The
Bank makes ways and means advances to the Governments for 90 days. It makes loans and
advances to the States and local authorities. It acts as adviser to the Government on all
monetary and banking matters.

Bankers' Bank and Lender of the Last Resort

The Reserve Bank of India acts as the bankers' bank. According to the provisions of the
Banking Companies Act of 1949, every scheduled bank was required to maintain with the
Reserve Bank a cash balance equivalent to 5% of its demand liabilites and 2 per cent of its time
liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities
was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their
aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve
Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible
securities or get financial accommodation in times of need or stringency by rediscounting bills of
exchange. Since commercial banks can always expect the Reserve Bank of India to come to
their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but
also the lender of the last resort.

Controller of Credit

The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume
of credit created by banks in India. It can do so through changing the Bank rate or through open
market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India
can ask any particular bank or the whole banking system not to lend to particular groups or
persons on the basis of certain types of securities. Since 1956, selective controls of credit are
increasingly being used by the Reserve Bank.
The Reserve Bank of India is armed with many more powers to control the Indian money
market. Every bank has to get a licence from the Reserve Bank of India to do banking business
within India, the licence can be cancelled by the Reserve Bank of certain stipulated conditions
are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can
open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank
showing, in detail, its assets and liabilities. This power of the Bank to call for information is also
intended to give it effective control of the credit system. The Reserve Bank has also the power
to inspect the accounts of any commercial bank.

As supereme banking authority in the country, the Reserve Bank of India, therefore, has the
following powers:
(a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and qualitative controls.

(c) It controls the banking system through the system of licensing, inspection and calling for
information.

(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.

Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to maintain the official rate of exchange.
According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at
fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed
was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d.
though there were periods of extreme pressure in favour of or against

the rupee. After India became a member of the International Monetary Fund in 1946, the
Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member
countries of the I.M.F.

Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the
custodian of India's reserve of international currencies. The vast sterling balances were
acquired and managed by the Bank. Further, the RBI has the responsibility of administering the
exchange controls of the country.

Supervisory functions

In addition to its traditional central banking functions, the Reserve bank has certain non-
monetary functions of the nature of supervision of banks and promotion of sound banking in
India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI
wide powers of supervision and control over commercial and co-operative banks, relating to
licensing and establishments, branch expansion, liquidity of their assets, management and
methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorised to
carry out periodical inspections of the banks and to call for returns and necessary information
from them. The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed
new responsibilities on the RBI for directing the growth of banking and credit policies towards
more rapid development of the economy and realisation of certain desired social objectives. The
supervisory functions of the RBI have helped a great deal in improving the standard of banking
in India to develop on sound lines and to improve the methods of their operation.

Promotional functions

With economic growth assuming a new urgency since Independence, the range of the Reserve
Bank's functions has steadily widened. The Bank now performs a varietyof developmental and
promotional functions, which, at one time, were regarded as outside the normal scope of central
banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to
rural and semi-urban areas, and establish and promote new specialised financing agencies.
Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up
the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial
Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963
and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up
directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and
to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve
Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only
since 1951 the Bank's role in this field has become extremely important. The Bank has
developed the co-operative credit movement to encourage saving, to eliminate moneylenders
from the villages and to route its short term credit to agriculture. The RBI has set up the
Agricultural Refinance and Development Corporation to provide long-term finance to farmers.

Classification of RBIs functions

The monetary functions also known as the central banking functions of the RBI are related to
control and regulation of money and credit, i.e., issue of currency, control of bank credit, control
of foreign exchange operations, banker to the Government and to the money market. Monetary
functions of the RBI are significant as they control and regulate the volume of money and credit
in the country.

Equally important, however, are the non-monetary functions of the RBI in the context of India's
economic backwardness. The supervisory function of the RBI may be regarded as a non-
monetary function (though many consider this a monetary function). The promotion of sound
banking in India is an important goal of the RBI, the RBI has been given wide and drastic
powers, under the Banking Regulation Act of 1949 - these powers relate to licencing of banks,
branch expansion, liquidity of their assets, management and methods of working, inspection,
amalgamation, reconstruction and liquidation. Under the RBI's supervision and inspection, the
working of banks has greatly improved. Commercial banks have developed into financially and
operationally sound and viable units. The RBI's powers of supervision have now been extended
to non-banking financial intermediaries. Since independence, particularly after its nationalisation
1949, the RBI has followed the promotional functions vigorously and has been responsible for
strong financial support to industrial and agricultural development in the country.

RESERVE BANK OF INDIA ADDRESS


Reserve Bank of India,
Central Office,
Shaheed Bhagat Singh Road,
Mumbai - 400 001.
History of Banking in India
Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners
of the country. This is one of the main reason of India's growth process.

The government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalisation of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or
for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient
bank transferred money from one branch to other in two days. Now it is simple as instant
messaging or dial a pizza. Money have become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases. They are as
mentioned below:

• Early phase from 1786 to 1969 of Indian Banks


• Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
• New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.
To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These
three banks were amalgamated in 1920 and Imperial Bank of India was established which
started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National
Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of
India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore
were set up. Reserve Bank of India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline
the functioning and activities of commercial banks, the Government of India came up with The
Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per
amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive
powers for the supervision of banking in india as the Central Banking Authority.

During those days public has lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department
was comparatively safer. Moreover, funds were largely given to traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence. In
1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale
specially in rural and semi-urban areas. It formed State Bank of india to act as the principal
agent of RBI and to handle banking transactions of the Union and State Governments all over
the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July,
1969, major process of nationalisation was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was
nationalised.

Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership.

The following are the steps taken by the Government of India to Regulate Banking Institutions in
the Country:

• 1949 : Enactment of Banking Regulation Act.


• 1955 : Nationalisation of State Bank of India.
• 1959 : Nationalisation of SBI subsidiaries.
• 1961 : Insurance cover extended to deposits.
• 1969 : Nationalisation of 14 major banks.
• 1971 : Creation of credit guarantee corporation.
• 1975 : Creation of regional rural banks.
• 1980 : Nationalisation of seven banks with deposits over 200 crore.
After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and immense
confidence about the sustainability of these institutions.

Phase III
This phase has introduced many more products and facilities in the banking sector in its reforms
measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his
name which worked for the liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and net banking is introduced. The entire
system became more convenient and swift. Time is given more importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis
triggered by any external macroeconomics shock as other East Asian Countries suffered. This
is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is
not yet fully convertible, and banks and their customers have limited foreign exchange
exposure.
List of banks in India
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This is a list of corporations engaged in banking business within the territory of India.

Contents
[hide]

• 1 Nationalised banks
• 2 Private Banks
• 3 Co-operative Banks
○ 3.1 Scheduled Urban Co-operative Banks
○ 3.2 Non-Scheduled Urban Co-operative Banks
• 4 Foreign banks
○ 4.1 Indian Banks with business outside India
○ 4.2 Foreign banks with business in India
 4.2.1 Foreign Banks with Representative Offices in India
• 5 References
• 6 See also

[edit] Nationalised banks


Nationalised banks are public sector banks.
Bank Notes

Allahabad Bank

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank
Central Bank of India

Corporation Bank

Dena Bank

IDBI Bank

Indian Bank

Indian Overseas Bank

Oriental Bank of Commerce

Punjab National Bank

Punjab & Sind Bank

Syndicate Bank

Union Bank of India

UCO Bank

United Bank of India

Vijaya Bank

The following banks are subsidiaries of State Bank of India:

• State Bank Bikaner & Jaipur


• State Bank of Hyderabad
State Bank of India • State Bank of Mysore
• State Bank of Patiala
• State Bank of Travancore
• State Bank of Indore (merged with SBI in 2010)
• State Bank of Saurashtra (merged with SBI in 2008)

[edit] Private Banks


• Axis Bank (Formerly UTI Bank)
• HDFC Bank
• ICICI Bank(Siddhashila)
• Kotak Mahindra Bank
• Karnataka Bank
• Yes Bank
• IndusInd Bank
• The Nainital Bank Ltd.
• ING Vysya Bank
• South Indian Bank

[edit] Co-operative Banks

[edit] Scheduled Urban Co-operative Banks


List of Scheduled Urban Co-operative Bank as on 31-3-2009 as per Reserve Bank of India[1]:
Main
Bank Notes
Location

Rani Laxmibai urban Co-op Bank, Jhansi

Ahmedabad Mercantile Co-Op Bank Ltd. Ahmedabad

Kalupur Commercial Coop.Bank Ltd. Kalupur

Madhavpura Mercantile Co-Op Bank Ltd. Madhavpur

Website-
Mehsana Urban Co-Op Bank Ltd. Mehsana
http://www.mucbank.com/

Nutan Nagarik Sahakari Bank Ltd. Ahmedabad

Rajkot Nagarik Sahakari Bank Ltd. Rajkot Website- http://nagarikbank.com/

Almora Urban Co-operative Bank ltd. Almora

South Indian Bank Tirichur

Sardar Bhiladwala Pardi Peoples Co-op


Bulsar
Bank Ltd.

Surat Peoples Coop Bank Ltd. Surat

Amanath Co-operative Bank Ltd. Bengaluru

Andhra Pradesh Mahesh Co-Op Urban Bank Andhra


Ltd. Pradesh

Charminar Coop.Urban Bank Ltd. Hyderabad

Sapthagiri Coop. Bank Chittoor

Vasavi Coop Urban Bank LImited. Hyderabad

Indian Mercantile Co-op Bank Ltd. Lucknow

Kallappanna Awade Ichalkaranji Janata


Ichalkaranji
Sahakari Bank Ltd.

Abhyudaya Co-operative Bank Ltd. Mumbai

Bangalore City Cooperative bank. Bengaluru


Bassein Catholic Co-operative Bank
Vasai
Limited.

Bharat Co-operative Bank (Mumbai) Ltd. Mumbai

Bharati Sahakari Bank Limited. Pune

Bombay Mercantile Co-operative Bank


Mumbai
Limited.

Citizen Credit Co-operative Bank Ltd. Dadar

Cosmos Co-operative Urban Bank Ltd. Pune

Dombivli Nagari Sahakari Bank Ltd. Dombivli

Goa Urban Co-operative Bank Limited. Goa

Greater Bombay Co-operative Bank


Mumbai
Limited.

Jalgaon Janata Sahakari Bank Ltd. Jalgaon

Janakalyan Sahakari Bank Ltd. Mumbai

Janalaxmi Co-operative Bank Ltd. Mumbai

Website-
Janata Sahakari Bank Ltd. Pune
http://www.janatabankpune.com/

The Karnataka State Co-Operative Apex


Bengaluru
Bank Ltd

Kalyan Janata Sahakari Bank Ltd. Kalyan

Karad Urban Co-operative Bank Ltd. Karad

Mahanagar Co-operative Bank Ltd. Mumbai

Mapusa Urban Co-operative Bank of Goa


Mapusa
Ltd.

Nagar Urban Co-operative Bank Ltd. Ahmednagar

Nasik Merchant's Co-operative Bank Ltd. Nasik

New India Co-operative Bank Ltd. Mumbai

NKGSB Co-operative Bank Ltd. Mumbai

Parsik Janata Sahakari Bank Ltd. Thane

Pravara Sahakari Bank Ltd. Ahmednagar


Punjab & Maharashtra Co-operative Bank
Mumbai
Ltd.

Rupee Co-operative Bank Ltd. Pune

Sangli Urban Co-operative Bank Ltd. Sangli

Saraswat Co-operative Bank Ltd. Mumbai

Shamrao Vithal Co-operative Bank Ltd. Mumbai

Solapur Janata Sahakari Bank Ltd. Solapur

Thane Bharat Sahakari Bank Ltd. Thane

Thane Janata Sahakari Bank Ltd. Thane

The Kapol Co-operative Bank Ltd. Mumbai

Zoroastrian Co-operative Bank Ltd. Mumbai

Nagpur Nagrik Sahakari Bank Ltd. Nagpur

Shikshak Sahakari Bank Ltd. Nagpur

The Akola Janata Com.Co-operative Bank


Akola
Ltd.

The Akola Urban Co-operative Bank Ltd. Akola

The Khamgaon Urban Co-operative Bank


Khamgaon
Ltd.

Cuttack Gramya Bank. Cuttack

Cuttack urban Co-operative Bank Ltd. Cuttack

[edit] Non-Scheduled Urban Co-operative Banks


List of Non-Scheduled Urban Co-operative Bank as on 31-3-2010 as per Reserve Bank of India[2]:
Bank Main Location Notes

Janaseva Sahakari Bank Ltd., Pune

Vishweshwar Sahakari Bank Ltd., Pune

Sadhna Sahakari Bank Ltd., Pune

Sanmitra Sahakari Bank Ltd., Pune


[edit] Foreign banks

[edit] Indian Banks with business outside India


List of subsidiaries of Indian Banks abroad as on November 30, 2007[3]:
Not
Name of the Bank Name of the Centre
es

SBI (Canada) Ltd. Toronto Vancouver,Mississauga

Los Angeles, Artesia,San Jose


SBI (California) Ltd.
(Silicon Valley)

SBI Finance Inc. Delaware U.S.A.

SBI International (Mauritius) (Off-shore Bank)Mauritius

Bank of Baroda Uganda) Ltd. Uganda

Bank of Baroda(Kenya) Ltd. Kenya

Bank of Baroda (U.K.) Nominee Ltd. London, UK

(Converted into Restricted


BOB (Hong Kong)Ltd.
Licensed Bank) Hongkong

Bank of India Finance(Kenya) Ltd. Kenya

IOB Properties Pte Ltd. Singapore

Bank of Baroda(Botswana) Ltd. Gaborone Botswana

Georgetown Guyana (South


Bank of Baroda(Guyana)Inc.
America)

ICICI Bank UK Ltd London (UK)

ICICI Bank Canada Ltd Toronto (Canada)

Bank of Baroda (Tanzania) Tanzania

Bank of Baroda (Dubai, Abu Dhabi, Ras Al Khaimah,


United Arab Emirates
Deira,Dammam, Salalah, Al Ain)

Bank of Baroda Sultanate of Oman, Muscat,

Bank of Baroda Belgium, Brussels

ICICI Bank Eurasia LLC Russia

PT Bank Indomonex Indonesia

Indian Ocean International Bank Ltd. (IOIB) Mauritius, Port Louis


Punjab National Bank International Limited (PNBIL) United Kingdom, London

Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago

PT Bank Swadesi Tbk Indonesia

Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago

[edit] Foreign banks with business in India


Banks with branches in India.[4]
• ABN AMRO Bank N.V. - Royal Bank of Scotland
• Abu Dhabi Commercial Bank Ltd
• American Express Bank
• Antwerp Diamond Bank
• Arab Bangladesh Bank
• Bank International Indonesia
• Bank of America
• Bank of Bahrain & Kuwait
• Bank of Ceylon
• Bank of Nova Scotia
• Bank of Tokyo Mitsubishi UFJ
• Barclays Bank
• BNP Paribas
• Calyon Bank
• ChinaTrust Commercial Bank
• Citibank
• DBS Bank
• Deutsche Bank
• HSBC (Hongkong & Shanghai Banking Corporation)
• JPMorgan Chase Bank
• Krung Thai Bank
• Mashreq Bank
• Mizuho Corporate Bank
• Oman International Bank
• Shinhan Bank
• Société Générale
• Sonali Bank
• Standard Chartered Bank
• State Bank of Mauritius
• UBS
• VTB [1]
[edit] Foreign Banks with Representative Offices in India
American Banks
• mayur coprative bank limited

[edit] References
• IndianBanks.org
• All India Banking Forum
• Indian Banks Logos
• Reserver Bank of India
1. ^ http://rbidocs.rbi.org.in/rdocs/Content/pdfs/schedulecoop.pdf
2. ^ http://rbidocs.rbi.org.in/rdocs/Content/pdfs/nonschedulecoop.pdf
3. ^ Page 2 of
http://www.rbi.org.in/commonman/Upload/English/Content/PDFs/71206.pdf
4. ^ www.rbi.org.in/commonman/Upload/English/Content/PDFs/71207.pdf
1.RBI as of 31 Mar 2008 www.rbi.org.in/commonman/Upload/English/Content/PDFs/71207.pdf

HISTORY OF RESERVE BANK OF INDIA


Date Event

Royal Commission on Indian Currency (Hilton Young Commission) recommends the establishment of a central bank to
1926 be called the 'Reserve Bank of India'.

Indian Central Banking Enquiry Committee revives the issue of the establishment of the Reserve Bank of India as the
1931 Central Bank for India.

5-Mar-34 Reserve Bank of India Act, 1934, (II of 1934) constitutes the statutory basis on which the Bank is established.

Reserve Bank of India commences operations. Sir Osborne Smith the first Governor of the Bank. The Bank was
1-Apr-35 constituted as a shareholders' bank.

Scheduled banks required to maintain the Cash Reserve Ratio, i.e., hold cash balances with the RBI equivalent to 5%
5-Jul-35 of their Demand Liabilities and 2% of their Time Liabilities.

Oct-35 London Office of the Reserve Bank set up. This was closed on September 30, 1963.

1-Nov-36 Resignation of the first Governor, Sir Osborne Smith, wef July 1, 1937.

15-Jan-37 Indian Companies (Amendment) Act, 1936 devotes a separate chapter exclusively to Banks.

1-Jul-37 Sir James Braid Taylor assumes office as Governor.

1937 RBI acts as banker to the Government of Burma and also responsible for note issue in Burma.

Jan-38 First Reserve Bank notes issued.

The Failure of the Travancore National and Quilon Bank, the largest bank in the Travancore region, underlined the
21-Jun-38 need for comprehensive banking reform and legislation.

3-Sep-39 Introduction of Exchange Controls in India under Defence of India Rules.

11-Mar-40 RBI Accounting Year changed from Jan-Dec to July-June.

The silver rupee replaced by the quarternary alloy rupee. One Rupee note reintroduced. This note had the status of a
1940 rupee coin and represented the introduction of official fiat money in India.

11-Aug-43 Sir C. D. Deshmukh assumes office of Governor.

1944 The security thread on notes introduced for the first time in India as a security feature.

Laws relating to Government securities and to the management of Public Debt by the Reserve Bank of India
1944 consolidated on the basis of the Public Debt Act, 1944.

Speculative activity in the financial and bullion markets. Defence of India Rules invoked to authorise the Reserve Bank
26-May-45 to collect information from banks in respect of advances. This was to check advances against bullion for speculation.

Reserve Bank of India entrusted with the Currency & Coinage of the British Military Administration of Burma as well as
9-Jun-45 Banker to BMA.

12-Jan-46 High Denomination Bank Notes of Rs 500, Rs 1000 and Rs 10,000 Demonetised to curb unaccounted money.
(Source RBI website)

. HISTORY OF BANKING IN INDIA

There are three different phases in the history of banking in India.


1) Pre-Nationalization Era.
2) Nationalization Stage.
3) Post Liberalization Era.

1) Pre-Nationalization Era:

In India the business of banking and credit was practices even in very early times. The

remittance of money through Hundies, an indigenous credit instrument, was very popular. The hundies

were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in different parts of the

country.

The modern type of banking, however, was developed by the Agency Houses of

Calcutta and Bombay after the establishment of Rule by the East India Company in 18th and 19th

centuries.

During the early part of the 19th Century, ht volume of foreign trade was relatively small.

Later on as the trade expanded, the need for banks of the European type was felt and the government of

the East India Company took interest in having its own bank. The government of Bengal took the initiative

and the first presidency bank, the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the

Bank of Bombay and IN 1843, the Bank of Madras was also set up.

These three banks also known as “Presidency Bank”. The Presidency Banks had their

branches in important trading centers but mostly lacked in uniformity in their operational policies. In 1899,

the Government proposed to amalgamate these three banks in to one so that it could also function as a

Central Bank, but the Presidency Banks did not favor the idea. However, the conditions obtaining during

world war period (1914-1918) emphasized the need for a unified banking institution, as a result of which

the Imperial Bank was set up in1921. The Imperial Bank of India acted like a Central bank and as a

banker for other banks.


The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the

Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and acquired

extensive regulatory powers over the commercial banks.


In 1950, the Indian Banking system comprised of the RBI, the Imperial
Bank of India, Cooperative banks, Exchange banks and Indian Joint Stock banks.
2) Nationalization Stages:

After Independence, in 1951, the All India Rural Credit survey,

committee of Direction with Shri. A. D. Gorwala as Chairman recommended

amalgamation of the Imperial Bank of India and ten others banks into a newly

established bank called the State Bank of India (SBI). The Government of India

accepted the recommendations of the committee and introduced the State Bank of India

bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the

president’s assent on 8th May 1955. The Act came into force on 1st July 1955, and the

Imperial Bank of India was nationalized in 1955 as the State Bank of India.

The main objective of establishing SBI by nationalizing the Imperial Bank of India was

“to extend banking facilities on a large scale more particularly in the rural and semi-

urban areas and to diverse other public purposes.”


In 1959, the SBI (Subsidiary Bank) act was proposed and the following
eight state-associated banks were taken over by the SBI as its subsidiaries.
Name of the Bank
Subsidiary with effect from
1. State Bank of Hyderabad
1st October 1959
2. State Bank of Bikaner
1st January 1960
3. State Bank of Jaipur
1st January 1960
4. State Bank of Saurashtra
1st May 1960
5. State Bank of Patiala
1st April 1960
6. State Bank of Mysore
1st March 1960
7. State Bank of Indore
1st January 1968
8. State Bank of Travancore
1st January 1960
With effect from 1st January 1963, the State Bank of Bikaner and State

Bank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State

Bank of India formed the SBI Group.

The SBI Group under statutory obligations was required to open new

offices in rural and semi-urban areas and modern banking was taken to these unbanked

remote areas.
3

BANKING SERVICES IN INDIA

On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the

nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50 crore and

above. This was a turning point in the history of commercial banking in India.

Later the Government Nationalized six more commercial private

sector banks with deposit liability of not less than Rs. 200 crores on 15th April

1980, viz.
i) Andhra Bank.
ii) Corporation Bank.
iii) New Bank if India.
iv) Oriental Bank of Commerce.
v) Punjab and Sind Bank.
vi) Vijaya Bank.

In 1969, the Lead Bank Scheme was introduced to extend banking facilities to every

corner of the country. Later in 1975, Regional Rural Banks were set up to supplement the activities of the

commercial banks and to especially meet the credit needs of the weaker sections of the rural society.

Nationalization of banks paved way for retail banking and as a result there has been an

alt round growth in the branch network, the deposit mobilization, credit disposals and of course

employment.

The first year after nationalization witnessed the total growth in the

agricultural loans and the loans made to SSI by 87% and 48% respectively. The overall

growth in the deposits and the advances indicates the improvement that has taken place

in the banking habits of the people in the rural and semi-urban areas where the branch
network has spread. Such credit expansion enabled the banks to achieve the goals of

nationalization, it was however, achieved at the coast of profitability of the banks.

Consequences of Nationalization:

The quality of credit assets fell because of liberal credit extension policy.

Political interference has been as additional malady.

Poor appraisal involved during the loan meals conducted for credit disbursals.

The credit facilities extended to the priority sector at concessional rates.

The high level of low yielding SLR investments adversely affected the

profitability of the banks.

• The rapid branch expansion has been the squeeze on profitability of banks

• emanating primarily due to the increase in the fixed costs.

• There was downward trend in the quality of services and

efficiency of the banks.

• 3) Post-Liberalization Era---Thrust on Quality and Profitability:

• By the beginning of 1990, the social banking goals set for the banking

industry made most of the public sector resulted in the presumption that there was

no

need to look at the fundamental financial strength of this bank. Consequently they

remained undercapitalized. Revamping this structure of the banking industry was of

extreme importance, as the health of the financial sector in particular and the

economy

was a whole would be reflected by its performance.

• The need for restructuring the banking industry was felt greater with the

initiation of the real sector reform process in 1992. the reforms have enhanced the

opportunities and challenges for the real sector making them operate in a
borderless

global market place. However, to harness the benefits of globalization, there should

be

an efficient financial sector to support the structural reforms taking place in the real

economy. Hence, along with the reforms of the real sector, the banking sector

reformation was also addressed.

• The route causes for the lackluster performance of banks, formed the

elements of the banking sector reforms. Some of the factors that led to the dismal

performance of banks were.

•  R e g u l a t e d i n t e r e s t

r a t e s t r u c t u r e .

 L a c k o f f o c u s o n

p r o f i t a b i l i t y .

 L a c k o f t r a n s p a r e n c y i n

t h e b a n k ’ s b a l a n c e

s h e e t .

 L a c k o f c o m p e t i t i o n .

 E x c e s s i v e r e g u l a t i o n o n

o r g a n i z a t i o n s t r u c t u r e

a n d m a n a g e r i a l r e s o u r c e .

 E x c e s s i v e s u p p o r t f r o m

g o v e r n m e n t .
• 6

• BANKING SERVICES IN INDIA


• Against this background, the financial sector reforms were initiated to bring about a

paradigm shift in the banking industry, by addressing the factors for its dismal

performance.

• In this context, the recommendations made by a high level committee

on financial sector, chaired by M. Narasimham, laid the foundation for the banking

sector reforms. These reforms tried to enhance the viability and efficiency of the

banking sector. The Narasimham Committee suggested that there should be

functional

autonomy, flexibility in operations, dilution of banking strangulations, reduction in

reserve requirements and adequate financial infrastructure in terms of supervision,

audit

and technology. The committee further advocated introduction of prudential forms,

transparency in operations and improvement in productivity, only aimed at

liberalizing

the regulatory framework, but also to keep them in time with international

standards.

The emphasis shifted to efficient and prudential banking linked to better customer

care

and customer services.


• 7

• BANKING SERVICES IN INDIA


• Private Sector Banks
• Private banking in India was practiced since the begining of banking system in

India. The first private bank in India to be set up in Private Sector Banks in India

was Indus Ind Bank. It is one of the fastest growing Bank Private Sector Banks in

India. IDBI ranks the tenth largest development bank in the world as Private Banks

in India and has promoted a world class institutions in India.

• The first Private Bank in India to receive an in principle approval from the Reserve

Bank of India was Housing Development Finance Corporation Limited, to set up a

bank in the private sector banks in India as part of the RBI's liberalization of the

Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited

with registered office in Mumbai and commenced operations as Scheduled

Commercial Bank in January 1995.

• ING Vaysya, yet another Private Bank of India was incorporated in the year 1930.

Bangalore has a pride of place for having the first branch inception in the year

1934. With successive years of patronage and constantly setting new standards in

banking, ING Vaysya Bank has many credits to its account.


• Entry of Private Sector Banks:

• There has been a paradigm shift in mindsets both at the Government

level in the banking industry over the years since Nationalization of Banks in 1969,

particularly during the last decade (1990-2000). Having achieved the objectives of

Nationalization, the most important issue before the industry at present is survival

and

growth in the environment generated by the economic liberalization greater

competition

with a view to achieving higher productivity and efficiency in January 1993 for the

entry of Private Sector banks based on the Nationalization Committee report of

1991,

which envisaged a larger role for Private Sector Banks.


• 8

• BANKING SERVICES IN INDIA

• The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new bank

and

the shares are to be listed at stock exchange. Also the new bank after being

granted

license under the Banking Regulation Act shall be registered as a public limited

company under the companies Act, 1956.

• Subsequently 9 new commercial banks have been granted license to start

banking operations. The new private sector banks have been very aggressive in

business expansion and is also reporting higher profile levels taking the advantage

of

technology and skilled manpower. In certain areas, these banks have even our

crossed

the other group of banks including foreign banks.


• Private Sector Banks
• Old Pvt. Sector Banks (25)
• New Pvt. Sector Banks (9)

• Current scenario

• Currently (2007), overall, banking in India is considered as fairly mature in terms of

supply, product range and reach-even though reach in rural India still remains a

challenge for the private sector and foreign banks. Even in terms of quality of
assets and capital adequacy, Indian banks are considered to have clean, strong

and transparent balance sheets-as compared to other banks in comparable

economies in its region. The Reserve Bank of India is an autonomous body, with

minimal pressure from the government. The stated policy of the Bank on the Indian

Rupee is to manage volatility-without any stated exchange rate-and this has mostly

been true. With the growth in the Indian economy expected to be strong for quite

some time-especially in its services sector, the demand for banking services-

especially retail banking, mortgages and investment services are expected to be

strong. M&As, takeovers, asset sales and much more action (as it is unraveling in

China) will happen on this front in India.

• In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its

stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time

an investor has been allowed to hold more than 5% in a private sector bank since

the RBI announced norms in 2005 that any stake exceeding 5% in the private

sector banks would need to be vetted by them. Currently, India has 88 scheduled

commercial banks (SCBs) - 28 public sector banks (that is with the Government of

India holding a stake), 29 private banks (these do not have government stake; they

may be publicly listed and traded on stock exchanges) and 31 foreign banks.

• BANKING SERVICES IN INDIA

• They have a combined network of over 53,000 branches and 17,000 ATMs.

According to a report by ICRA Limited, a rating agency, the public sector banks

hold over 75 percent of total assets of the banking industry, with the private and

foreign banks holding 18.2% and 6.5% respectively.

• Broad Classification of Banks in India:


• 1) The RBI: The RBI is the supreme monetary and banking authority in
the
• country and has the responsibility to control the banking system in the country. It

keeps the reserves of all scheduled banks and hence is known as the “Reserve

Bank”.
• 2) Public Sector Banks:
• •
• State Bank of India and its Associates (8)
• •
• Nationalized Banks (19)
• •
• Regional Rural Banks Sponsored by Public Sector Banks (196)
• (3) Private Sector Banks:
• • Old Generation Private Banks (22)
• •
• Foreign New Generation Private Banks (8)
• • Banks in India (40)
• (4) Co-operative Sector Banks:
• •
• State Co-operative Banks
• •
• Central Co-operative Banks
• •
• Primary Agricultural Credit Societies
• •
• Land Development Banks
• •
• State Land Development Banks

• (5) Development Banks: Development Banks mostly provide long term


finance for
• setting up industries. They also provide short-term finance (for export
and import
• activities)
• •
• Industrial Finance Co-operation of India (IFCI)
• •
• Industrial Development of India (IDBI)
• •
• Industrial Investment Bank of India (IIBI)
• •
• Small Industries Development Bank of India (SIDBI)
• •
• National Bank for Agriculture and Rural Development (NABARD)
• •
• Export-Import Bank of India
• Role of Banks:Banks play a positive role in economic development of a
country as

• repositories of community’s savings and as purveyors of credit. Indian Banking has

aided the economic development during the last fifty years in an effective way. The

banking sector has shown a remarkable responsiveness to the needs of planned

economy. It has brought about a considerable progress in its efforts at deposit

mobilization and has taken a number of measures in the recent past for

accelerating the rate of growth of deposits. As recourse to this, the commercial


banks opened branches in urban, semi-urban and rural areas and have introduced

a number of attractive schemes to foster economic development.

• The activities of commercial banking have growth in multi-directional ways as well

as multi-dimensional manner. Banks have been playing a catalytic role in area

development, backward area development, extended assistance to rural

development all along helping agriculture, industry, international trade in a

significant manner. In a way, commercial banks have emerged as key financial

agencies for rapid economic development.


• 14

• BANKING SERVICES IN INDIA

• By pooling the savings together, banks can make available funds to specialized

institutions which finance different sectors of the economy, needing capital for

various purposes, risks and durations. By contributing to government securities,

bonds and debentures of term-lending institutions in the fields of agriculture,

industries and now housing, banks are also providing these institutions with an

access to the common pool of savings mobilized by them, to that extent relieving

them of the responsibility of directly approaching the saver. This intermediation role

of banks is particularly important in the early stages of economic development and

financial specification. A country like India, with different regions at different stages

of development, presents an interesting spectrum of the evolving role of banks, in

the matter of inter-mediation and beyond.

• Mobilization of resources forms an integral part of the development process in

India. In this process of mobilization, banks are at a great advantage, chiefly

because of their network of branches in the country. And banks have to place

considerable reliance on the mobilization of deposits from the public to finance

development programmes. Further, deposit mobalization by banks in India

acquired greater significance in their new role in economic development.


• Commercial banks provide short-term and medium-term financial assistance. The

short-term credit facilities are granted for working capital requirements. The

medium-term loans are for the acquisition of land, construction of factory premises

and purchase of machinery and equipment. These loans are generally granted for

periods ranging from five to seven years. They also establish letters of credit on

behalf of their clients favouring suppliers of raw materials/machinery (both Indian

and foreign) which extend the banker’s assurance for payment and thus help their

delivery. Certain transaction, particularly those in contracts of sale of Government

Departments, may require guarantees being issued in lieu of security earnest

money deposits for

• release of advance money, supply of raw materials for processing, full


payment of bills
• on the assurance of the performance etc. Commercial banks issue such
guarantees also.
• The Role of Reserve Bank of India (RBI) – Banker’s Bank:
• The Reserve Bank of India (RBI) is the central bank of India, and was

established on April 1, 1935 in accordance with the provisions of the Reserve Bank

of India Act, 1934. Since its inception, it has been headquartered in Mumbai.

Though originally privately owned, RBI has been fully owned by the Government of

India since nationalization in 1949.

• RBI is governed by a central board (headed by a Governor) appointed by the

Central Government. The current governor of RBI is Dr.Y.Venugopal Reddy

(who succeeded Dr. Bimal Jalan on September 6,2003

• ). RBI has 22 regional offices across India.The Reserve Bank of India was set up

on the recommendations of the Hilton Young Commission. The commission

submitted its report in the year1926, though the bank was not set up for nine years

• Formulates, implements and monitors the monetary policy.


• •

• Objective: maintaining price stability and ensuring adequate flow of


credit to
• productive sectors.
• Regulator and supervisor of the financial system
• •
• Prescribes broad parameters of banking operations within which the
country’s
• banking and financial system functions.
• •

• Objective: maintain public confidence in the system, protect depositors’ interest

and provide cost-effective banking services to the public. The Banking

Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI)

for effective redressal of complaints by bank customers


• Manager of Exchange Control
• •

• Manages the Foreign Exchange Management Act, 1999.


• •

• Objective: to facilitate external trade and payment and promote orderly


• development and maintenance of foreign exchange market in India.
• Issuer of currency
• •

• Issues and exchanges or destroys currency and coins not fit for
circulation

• Objective: to give the public adequate quantity of supplies of currency


notes and
• coins and in good quality.
• Developmental role
• •

• Performs a wide range of promotional functions to support national

objectives

• BANKING SERVICES IN INDIA


• Related Functions
• •

• Banker to the Government: performs merchant banking function for the


central
• and the state governments; also acts as their banker.
• •

• Banker to banks: maintains banking accounts of all scheduled banks.


• •

• Owner and operator of the depository (SGL) and exchange (NDS) for
• government bonds.
• There is now an international consensus about the need to focus the tasks of a
central bank upon central banking. RBI is far out of touch with such a principle,
owing to the sprawling mandate described above.
• Supervisory Functions:
• In addition to its traditional central functions, the Reserve bank has certain non-

monetary functions of the nature of supervision of banks and promotion of sound

banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act,

1949 have given the RBI wide powers of supervision and control over commercial

and cooperative banks, relating to licensing and establishments, branch expansion,


liquidity of their assets, management and methods of working, amalgamation,

reconstruction and liquidation. The RBI is authorized to carry out periodical

inspections of the banks and to call for returns and necessary information from

them. The nationalization of 14 major Indian scheduled banks in July 1969 has

imposed new responsibilities on the RBI for directing the growth of banking and

credit policies towards more rapid development of the economy and realization of

certain desired social objectives. The supervisory functions of the RBI have helped

a great deal in improving the standard of banking in India to develop on sound lines

and to improve the methods of their operation.


• 18

• BANKING SERVICES IN INDIA


• Promotional Functions:
• With economic growth assuming a new urgency since Independence, the range of

the Reserve Bank’s functions have steadily widened. The Bank now performs a

variety of developmental and promotional functions, which, at one time, were

regarded as outside the normal scope of central banking. The Reserve Bank was

asked to promote banking habit, extend banking facilities to rural and semi-urban

areas, and establish and promote new specialized financing agencies. Accordingly,

the Reserve bank has helped in the setting up of the IFCI and the SFC: it set up

the Deposit Insurance Corporation of India in 1963 and the Industrial

Reconstruction Corporation of India in 1972. These institutions were set up directly

or indirectly by the Reserve Bank to promote saving habit and to mobilize savings,

and to provide industrial finance as well as agricultural finance. As far back as

1935, the RBI set up the Agricultural Credit Department to provide agricultural

credit. But only since 1951 the Bank’s role in this field has become extremely

important. The Bank has developed the co-operative credit movement to


encourage saving, to eliminate money-lenders from the villages and to route its

short term credit to agriculture. The RBI has set up the Agricultural Refinance and

Development Corporation to provide long-term finance to farmers.

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• BANKING SERVICES IN INDIA

• I. HISTORY OF BANKING IN INDIA

• There are three different phases in the history of banking in India.


• 1)

• Pre-Nationalization Era.

• 2)

• Nationalization Stage.

• 3)

• Post Liberalization Era.

• 1) Pre-Nationalization Era:

• In India the business of banking and credit was practices even in very early times.

The remittance of money through Hundies, an indigenous credit instrument, was

very popular. The hundies were issued by bankers known as Shroffs, Sahukars,

Shahus or Mahajans in different parts of the country.

• The modern type of banking, however, was developed by the Agency Houses of

Calcutta and Bombay after the establishment of Rule by the East India Company in

18th and 19th centuries.

• During the early part of the 19th Century, ht volume of foreign trade was relatively

small. Later on as the trade expanded, the need for banks of the European type

was felt and the government of the East India Company took interest in having its

own bank. The government of Bengal took the initiative and the first presidency

bank, the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the

Bank of Bombay and IN 1843, the Bank of Madras was also set up.
• 1

• BANKING SERVICES IN INDIA

• These three banks also known as “Presidency Bank”. The Presidency Banks had

their branches in important trading centers but mostly lacked in uniformity in their

operational policies. In 1899, the Government proposed to amalgamate these three


banks in to one so that it could also function as a Central Bank, but the Presidency

Banks did not favor the idea. However, the conditions obtaining during world war

period (1914-1918) emphasized the need for a unified banking institution, as a

result of which the Imperial Bank was set up in1921. The Imperial Bank of India

acted like a Central bank and as a banker for other banks.

• The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of

the Country. In 1949, the Banking Regulation act was passed and the RBI was

nationalized and acquired extensive regulatory powers over the commercial banks.
• In 1950, the Indian Banking system comprised of the RBI, the Imperial

• Bank of India, Cooperative banks, Exchange banks and Indian Joint Stock
banks.

• 2) Nationalization Stages:

• After Independence, in 1951, the All India Rural Credit survey,

committee of Direction with Shri. A. D. Gorwala as Chairman recommended

amalgamation of the Imperial Bank of India and ten others banks into a newly

established bank called the State Bank of India (SBI). The Government of India

accepted the recommendations of the committee and introduced the State Bank of

India

bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got

the

president’s assent on 8th May 1955. The Act came into force on 1st July 1955, and

the

Imperial Bank of India was nationalized in 1955 as the State Bank of India.
• 2

• BANKING SERVICES IN INDIA


• The main objective of establishing SBI by nationalizing the Imperial Bank of India

was

“to extend banking facilities on a large scale more particularly in the rural and semi-

urban areas and to diverse other public purposes.”


• In 1959, the SBI (Subsidiary Bank) act was proposed and the following

• eight state-associated banks were taken over by the SBI as its


subsidiaries.

• Name of the Bank

• Subsidiary with effect from

• 1. State Bank of Hyderabad

• 1st October 1959

• 2. State Bank of Bikaner

• 1st January 1960

• 3. State Bank of Jaipur

• 1st January 1960

• 4. State Bank of Saurashtra

• 1st May 1960

• 5. State Bank of Patiala

• 1st April 1960

• 6. State Bank of Mysore

• 1st March 1960

• 7. State Bank of Indore

• 1st January 1968

• 8. State Bank of Travancore

• 1st January 1960

• With effect from 1st January 1963, the State Bank of Bikaner and State

Bank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks
State

Bank of India formed the SBI Group.

• The SBI Group under statutory obligations was required to open new

offices in rural and semi-urban areas and modern banking was taken to these

unbanked

remote areas.
• 3

• BANKING SERVICES IN INDIA

• 3) Post-Liberalization Era---Thrust on Quality and Profitability:

• By the beginning of 1990, the social banking goals set for the banking

industry made most of the public sector resulted in the presumption that there was

no

need to look at the fundamental financial strength of this bank. Consequently they

remained undercapitalized. Revamping this structure of the banking industry was of

extreme importance, as the health of the financial sector in particular and the

economy

was a whole would be reflected by its performance.

• The need for restructuring the banking industry was felt greater with the

initiation of the real sector reform process in 1992. the reforms have enhanced the

opportunities and challenges for the real sector making them operate in a

borderless

global market place. However, to harness the benefits of globalization, there should

be

an efficient financial sector to support the structural reforms taking place in the real
economy. Hence, along with the reforms of the real sector, the banking sector

reformation was also addressed.

• The route causes for the lackluster performance of banks, formed the

elements of the banking sector reforms. Some of the factors that led to the dismal

performance of banks were.

•  R e g u l a t e d i n t e r e s t

r a t e s t r u c t u r e .

 L a c k o f f o c u s o n

p r o f i t a b i l i t y .

 L a c k o f t r a n s p a r e n c y i n

t h e b a n k ’ s b a l a n c e

s h e e t .

 L a c k o f c o m p e t i t i o n .

 E x c e s s i v e r e g u l a t i o n o n

o r g a n i z a t i o n s t r u c t u r e

a n d m a n a g e r i a l r e s o u r c e .

 E x c e s s i v e s u p p o r t f r o m

g o v e r n m e n t .
• 6

• BANKING SERVICES IN INDIA

• Against this background, the financial sector reforms were initiated to bring about a

paradigm shift in the banking industry, by addressing the factors for its dismal

performance.
• In this context, the recommendations made by a high level committee

on financial sector, chaired by M. Narasimham, laid the foundation for the banking

sector reforms. These reforms tried to enhance the viability and efficiency of the

banking sector. The Narasimham Committee suggested that there should be

functional

autonomy, flexibility in operations, dilution of banking strangulations, reduction in

reserve requirements and adequate financial infrastructure in terms of supervision,

audit

and technology. The committee further advocated introduction of prudential forms,

transparency in operations and improvement in productivity, only aimed at

liberalizing

the regulatory framework, but also to keep them in time with international

standards.

The emphasis shifted to efficient and prudential banking linked to better customer

care

and customer services.


• 7

• BANKING SERVICES IN INDIA

• Private Sector Banks


• Private banking in India was practiced since the begining of banking system in

India. The first private bank in India to be set up in Private Sector Banks in India

was Indus Ind Bank. It is one of the fastest growing Bank Private Sector Banks in

India. IDBI ranks the tenth largest development bank in the world as Private Banks

in India and has promoted a world class institutions in India.

• The first Private Bank in India to receive an in principle approval from the Reserve

Bank of India was Housing Development Finance Corporation Limited, to set up a

bank in the private sector banks in India as part of the RBI's liberalization of the

Indian Banking Industry. It was incorporated in August 1994 as HDFC Bank Limited

with registered office in Mumbai and commenced operations as Scheduled

Commercial Bank in January 1995.

• ING Vaysya, yet another Private Bank of India was incorporated in the year 1930.

Bangalore has a pride of place for having the first branch inception in the year

1934. With successive years of patronage and constantly setting new standards in

banking, ING Vaysya Bank has many credits to its account.


• Entry of Private Sector Banks:

• There has been a paradigm shift in mindsets both at the Government

level in the banking industry over the years since Nationalization of Banks in 1969,

particularly during the last decade (1990-2000). Having achieved the objectives of

Nationalization, the most important issue before the industry at present is survival

and

growth in the environment generated by the economic liberalization greater

competition

with a view to achieving higher productivity and efficiency in January 1993 for the

entry of Private Sector banks based on the Nationalization Committee report of

1991,

which envisaged a larger role for Private Sector Banks.


• 8

• BANKING SERVICES IN INDIA

• The RBI prescribed a minimum paid up capital of Rs. 100 crores for the new bank

and

the shares are to be listed at stock exchange. Also the new bank after being

granted

license under the Banking Regulation Act shall be registered as a public limited

company under the companies Act, 1956.

• Subsequently 9 new commercial banks have been granted license to start

banking operations. The new private sector banks have been very aggressive in

business expansion and is also reporting higher profile levels taking the advantage

of

technology and skilled manpower. In certain areas, these banks have even our

crossed

the other group of banks including foreign banks.


• Private Sector Banks

• Old Pvt. Sector Banks (25)

• New Pvt. Sector Banks (9)


• 9

• BANKING SERVICES IN INDIA

• Current scenario

• Currently (2007), overall, banking in India is considered as fairly mature in terms of

supply, product range and reach-even though reach in rural India still remains a

challenge for the private sector and foreign banks. Even in terms of quality of

assets and capital adequacy, Indian banks are considered to have clean, strong

and transparent balance sheets-as compared to other banks in comparable

economies in its region. The Reserve Bank of India is an autonomous body, with

minimal pressure from the government. The stated policy of the Bank on the Indian

Rupee is to manage volatility-without any stated exchange rate-and this has mostly

been true. With the growth in the Indian economy expected to be strong for quite

some time-especially in its services sector, the demand for banking services-

especially retail banking, mortgages and investment services are expected to be

strong. M&As, takeovers, asset sales and much more action (as it is unraveling in

China) will happen on this front in India.


• In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its

stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time

an investor has been allowed to hold more than 5% in a private sector bank since

the RBI announced norms in 2005 that any stake exceeding 5% in the private

sector banks would need to be vetted by them. Currently, India has 88 scheduled

commercial banks (SCBs) - 28 public sector banks (that is with the Government of

India holding a stake), 29 private banks (these do not have government stake; they

may be publicly listed and traded on stock exchanges) and 31 foreign banks.
• 10

• BANKING SERVICES IN INDIA

• They have a combined network of over 53,000 branches and 17,000 ATMs.

According to a report by ICRA Limited, a rating agency, the public sector banks

hold over 75 percent of total assets of the banking industry, with the private and

foreign banks holding 18.2% and 6.5% respectively.


• 11

• BANKING SERVICES IN INDIA

• II. BANKING IN INDIA

• Overview of Banking:

• Banking Regulation Act of India, 1949 defines Banking as “accepting, for the

purpose of lending or of investment of deposits of money from the public,

repayable on demand or otherwise or withdrawable by cheque, draft order or

otherwise.” The Reserve Bank of India Act, 1934 and the Banking Regulation Act,

1949, govern the banking operations in India.


• Organizational Structure of Banks in India:

• In India banks are classified in various categories according to differ

• rent criteria. The following charts indicate the banking structure:

• 12

• Reserve Bank of India

• Commercial Banks
• Co-operative Banks

• Development Banks

• Nationalized

• Private

• Short-term

• credit

• Long-term

• credit

• Agricultural

• Credit

• Urban

• Credit

• EXIM

• Industrial

• Agricultural

• BANKING SERVICES IN INDIA

• Broad Classification of Banks in India:

• 1) The RBI: The RBI is the supreme monetary and banking authority in
the

• country and has the responsibility to control the banking system in the country. It

keeps the reserves of all scheduled banks and hence is known as the “Reserve

Bank”.
• 2) Public Sector Banks:
• •

• State Bank of India and its Associates (8)


• •

• Nationalized Banks (19)


• •

• Regional Rural Banks Sponsored by Public Sector Banks (196)

• (3) Private Sector Banks:

• • O l d G e n e r a t i o n P r i v a t e B a n k s
( 2 2 )

• •

• Foreign New Generation Private Banks (8)

• • B a n k s i n I n d i a ( 4 0 )

• (4) Co-operative Sector Banks:


• •

• State Co-operative Banks


• •

• Central Co-operative Banks


• •

• Primary Agricultural Credit Societies


• •

• Land Development Banks


• •

• State Land Development Banks

• 13

• BANKING SERVICES IN INDIA

• (5) Development Banks: Development Banks mostly provide long term


finance for

• setting up industries. They also provide short-term finance (for export


and import

• activities)
• •
• Industrial Finance Co-operation of India (IFCI)
• •

• Industrial Development of India (IDBI)


• •

• Industrial Investment Bank of India (IIBI)


• •

• Small Industries Development Bank of India (SIDBI)


• •

• National Bank for Agriculture and Rural Development (NABARD)


• •

• Export-Import Bank of India

• Role of Banks:Banks play a positive role in economic development of a


country as

• repositories of community’s savings and as purveyors of credit. Indian Banking has

aided the economic development during the last fifty years in an effective way. The

banking sector has shown a remarkable responsiveness to the needs of planned

economy. It has brought about a considerable progress in its efforts at deposit

mobilization and has taken a number of measures in the recent past for

accelerating the rate of growth of deposits. As recourse to this, the commercial

banks opened branches in urban, semi-urban and rural areas and have introduced

a number of attractive schemes to foster economic development.

• The activities of commercial banking have growth in multi-directional ways as well

as multi-dimensional manner. Banks have been playing a catalytic role in area

development, backward area development, extended assistance to rural

development all along helping agriculture, industry, international trade in a

significant manner. In a way, commercial banks have emerged as key financial

agencies for rapid economic development.


• 14


• BANKING SERVICES IN INDIA

• By pooling the savings together, banks can make available funds to specialized

institutions which finance different sectors of the economy, needing capital for

various purposes, risks and durations. By contributing to government securities,

bonds and debentures of term-lending institutions in the fields of agriculture,

industries and now housing, banks are also providing these institutions with an

access to the common pool of savings mobilized by them, to that extent relieving

them of the responsibility of directly approaching the saver. This intermediation role

of banks is particularly important in the early stages of economic development and

financial specification. A country like India, with different regions at different stages

of development, presents an interesting spectrum of the evolving role of banks, in

the matter of inter-mediation and beyond.

• Mobilization of resources forms an integral part of the development process in

India. In this process of mobilization, banks are at a great advantage, chiefly

because of their network of branches in the country. And banks have to place

considerable reliance on the mobilization of deposits from the public to finance

development programmes. Further, deposit mobalization by banks in India

acquired greater significance in their new role in economic development.

• Commercial banks provide short-term and medium-term financial assistance. The

short-term credit facilities are granted for working capital requirements. The

medium-term loans are for the acquisition of land, construction of factory premises

and purchase of machinery and equipment. These loans are generally granted for

periods ranging from five to seven years. They also establish letters of credit on

behalf of their clients favouring suppliers of raw materials/machinery (both Indian

and foreign) which extend the banker’s assurance for payment and thus help their

delivery. Certain transaction, particularly those in contracts of sale of Government

Departments, may require guarantees being issued in lieu of security earnest

money deposits for


• 15

• BANKING SERVICES IN INDIA

• release of advance money, supply of raw materials for processing, full


payment of bills

• on the assurance of the performance etc. Commercial banks issue such


guarantees also.

• The Role of Reserve Bank of India (RBI) – Banker’s Bank:

• The Reserve Bank of India (RBI) is the central bank of India, and was

established on April 1, 1935 in accordance with the provisions of the Reserve Bank

of India Act, 1934. Since its inception, it has been headquartered in Mumbai.

Though originally privately owned, RBI has been fully owned by the Government of

India since nationalization in 1949.


• RBI is governed by a central board (headed by a Governor) appointed by the

Central Government. The current governor of RBI is Dr.Y.Venugopal Reddy

(who succeeded Dr. Bimal Jalan on September 6,2003

• ). RBI has 22 regional offices across India.The Reserve Bank of India was set up

on the recommendations of the Hilton Young Commission. The commission

submitted its report in the year1926, though the bank was not set up for nine

years.
• 16


• BANKING SERVICES IN INDIA

• Main Objective:

• Monetary Authority
• •

• Formulates, implements and monitors the monetary policy.


• •

• Objective: maintaining price stability and ensuring adequate flow of


credit to

• productive sectors.

• Regulator and supervisor of the financial system


• •

• Prescribes broad parameters of banking operations within which the


country’s

• banking and financial system functions.


• •

• Objective: maintain public confidence in the system, protect depositors’ interest

and provide cost-effective banking services to the public. The Banking

Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI)

for effective redressal of complaints by bank customers


• Manager of Exchange Control
• •

• Manages the Foreign Exchange Management Act, 1999.


• •

• Objective: to facilitate external trade and payment and promote orderly

• development and maintenance of foreign exchange market in India.


• Issuer of currency
• •

• Issues and exchanges or destroys currency and coins not fit for
circulation.
• •

• Objective: to give the public adequate quantity of supplies of currency


notes and

• coins and in good quality.

• Developmental role
• •

• Performs a wide range of promotional functions to support national


objectives.

• 17

• BANKING SERVICES IN INDIA

• Related Functions
• •

• Banker to the Government: performs merchant banking function for the


central

• and the state governments; also acts as their banker.


• •

• Banker to banks: maintains banking accounts of all scheduled banks.


• •

• Owner and operator of the depository (SGL) and exchange (NDS) for

• government bonds.
• There is now an international consensus about the need to focus the tasks of a
central bank upon central banking. RBI is far out of touch with such a principle,
owing to the sprawling mandate described above.
• Supervisory Functions:

• In addition to its traditional central functions, the Reserve bank has certain non-

monetary functions of the nature of supervision of banks and promotion of sound

banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act,

1949 have given the RBI wide powers of supervision and control over commercial

and cooperative banks, relating to licensing and establishments, branch expansion,

liquidity of their assets, management and methods of working, amalgamation,

reconstruction and liquidation. The RBI is authorized to carry out periodical

inspections of the banks and to call for returns and necessary information from

them. The nationalization of 14 major Indian scheduled banks in July 1969 has

imposed new responsibilities on the RBI for directing the growth of banking and

credit policies towards more rapid development of the economy and realization of

certain desired social objectives. The supervisory functions of the RBI have helped

a great deal in improving the standard of banking in India to develop on sound lines

and to improve the methods of their operation.


• 18

• BANKING SERVICES IN INDIA

• Promotional Functions:

• With economic growth assuming a new urgency since Independence, the range of

the Reserve Bank’s functions have steadily widened. The Bank now performs a

variety of developmental and promotional functions, which, at one time, were

regarded as outside the normal scope of central banking. The Reserve Bank was
asked to promote banking habit, extend banking facilities to rural and semi-urban

areas, and establish and promote new specialized financing agencies. Accordingly,

the Reserve bank has helped in the setting up of the IFCI and the SFC: it set up

the Deposit Insurance Corporation of India in 1963 and the Industrial

Reconstruction Corporation of India in 1972. These institutions were set up directly

or indirectly by the Reserve Bank to promote saving habit and to mobilize savings,

and to provide industrial finance as well as agricultural finance. As far back as

1935, the RBI set up the Agricultural Credit Department to provide agricultural

credit. But only since 1951 the Bank’s role in this field has become extremely

important. The Bank has developed the co-operative credit movement to

encourage saving, to eliminate money-lenders from the villages and to route its

short term credit to agriculture. The RBI has set up the Agricultural Refinance and

Development Corporation to provide long-term finance to farmers.


• 19

• BANKING SERVICES IN INDIA

• Co-operative Banks:

• The Co-operative bank has a history of almost 100 years. The Co- operative banks

are an important constituent of the Indian Financial System, judging by the role

assigned to them, the expectations they are supposed to fulfill, their number, and

the number of offices they operate. The co-operative movement originated in the

West, but the importance that such banks have assumed in India is rarely

paralleled anywhere else in the world. Their role in rural financing continues to be

important even today, and their business in the urban areas also has increased
phenomenally in recent years mainly due to the sharp increase in the number of

co-operative banks.

• While the co-operative banks in rural areas mainly finance agricultural based

activities including farming, cattle, milk, hatchery, personal finance etc. along with

some small scale industries and self-employment driven activities, the co-

operative banks in urban areas mainly finance various categories of people for self-

employment, industries, small scale units, home finance, consumer finance,

personal finance, etc. Some of the co-operative banks are quite forward looking

and have developed sufficient core competencies to challenge state and private

sector banks.

• According to NAFCUB the total deposits & lendings of Co-operative Banks is much

more than Old Private Sector Banks & also the New Private Sector Banks. This

exponential growth of Co-operative Banks is attributed mainly to their much better

local reach, personal interaction with customers, their ability to catch the nerve of

the local clientele. Though registered under the Co-operative Societies Act of the

Respective States (where formed originally) the banking related activities of the co-

operative banks are also regulated by the Reserve Bank of India. They are

governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative

Societies) Act, 1965.


• 20

• BANKING SERVICES IN INDIA

• There are two main categories of the co-operative banks.


• (a) Short term lending oriented co-operative Banks – within this category

there are three sub categories of banks viz state co-operative banks, District co-

operative banks and Primary Agricultural co-operative societies.

• (b) Long term lending oriented co-operative Banks – within the second

category there are land development banks at three levels state level, district level

and village level.


• Features of Cooperative Banks

• Co-operative Banks are organized and managed on the principal of co-operation,

self- help, and mutual help. They function with the rule of “one member, one vote”.

Function on “no profit, no loss” basis. Co-operative banks, as a principle, do not

pursue the goal of profit maximization. Co-operative bank performs all the main

banking functions of deposit mobilization, supply of credit and provision of

remittance facilities. Co-operative Banks provide limited banking products and are

functionally specialists in agriculture related products. However, co-operative banks

now provide housing loans also.


• UCBs

• provide

• working

• capital

• loans

• and

• term

• loan

• as

• well. The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs)

and Urban Co-operative Banks (UCBs) can normally extend housing loans upto Rs

1 lakh to an individual. The scheduled UCBs, however, can lend upto Rs 3 lakh for

housing purposes.
• BANKING SERVICES IN INDIA

• The UCBs can provide advances against shares and debentures also. Co-

operative bank do banking business mainly in the agriculture and rural sector.

However, UCBs, SCBs, and CCBs operate in semi urban, urban, and metropolitan

areas also.

• The urban and non-agricultural business of these banks has grown over the years.

The co-operative banks demonstrate a shift from rural to urban, while the

commercial banks, from urban to rural. Co-operative banks are perhaps the first

government sponsored, government-supported, and government-subsidized

financial agency in India. They get financial and other help from the Reserve Bank

of India NABARD, central government and state governments. They constitute the

“most favoured” banking sector with risk of nationalization. For commercial banks,

the Reserve Bank of India is lender of last resort, but co-operative banks it is the

lender of first resort which provides financial resources in the form of contribution to

the initial capital (through state government), working capital, refinance.

• Co-operative Banks belong to the money market as well as to the capital market.

Primary agricultural credit societies provide short term and medium term loans.

Land Development Banks (LDBs) provide long-term loans. SCBs and CCBs also

provide both short term and term loans. Co-operative banks are financial

intermediaries only partially. The sources of their funds (resources) are (a) central

and state government, (b) the Reserve Bank of India and NABARD, (c) other co-

operative institutions, (d) ownership funds and, (e) deposits or debenture issues. It

is interesting to note that intra-sectoral flows of funds are much greater in co-

operative banking than in commercial banking. Inter-bank deposits, borrowings,

and credit from a significant part of assets and liabilities of co-operative banks. This

means that intra-sectoral competition is absent and intra-sectoral integration is high

for co-operative bank.


• 22

• BANKING SERVICES IN INDIA

• Some co-operative banks are scheduled banks, while others are non- scheduled

banks. For instance, SCBs and some UCBs are scheduled banks but other co-

operative bank are non-scheduled banks. At present, 28 SCBs and 11 UCBs with

Demand and Time Liabilities over Rs 50 crore each included in the Second

Schedule of the Reserve Bank of India Act.

• Co-operative Banks are subject to CRR and liquidity requirements as other

scheduled and non-scheduled banks are. However, their requirements are less

than commercial banks. Since 1966 the lending and deposit rate of commercial

banks have been directly regulated by the Reserve Bank of India. Although the

Reserve Bank of India had power to regulate the rate co-operative bank but this

have been exercised only after 1979 in respect of non-agricultural advances they

were free to charge any rates at their discretion. Although the main aim of the co-

operative bank is to provide cheaper credit to their members and not to maximize

profits, they may access the money market to improve their income so as to remain

viable.

III. PRODUCTS AND SERVICES OFFERED BY BANKS


Broad Classification of Products in a bank:
The different products in a bank can be broadly classified into:

Retail Banking.

Trade Finance.

Treasury Operations.

Retail Banking and Trade finance operations are conducted at the branch level while the wholesale

banking operations, which cover treasury operations, are at the hand office or a designated branch.
Retail Banking:

Deposits

Loans, Cash Credit and Overdraft

Negotiating for Loans and advances

Remittances

Book-Keeping (maintaining all accounting records)

Receiving all kinds of bonds valuable for safe keeping
Trade Finance:

Issuing and confirming of letter of credit.

Drawing, accepting, discounting, buying, selling, collecting of bills of
exchange, promissory notes, drafts, bill of lading and other securities.
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BANKING SERVICES IN INDIA


Treasury Operations:

Buying and selling of bullion. Foreign exchange

Acquiring, holding, underwriting and dealing in shares, debentures, etc.

Purchasing and selling of bonds and securities on behalf of constituents.

The banks can also act as an agent of the Government or local authority. They insure,

guarantee, underwrite, participate in managing and carrying out issue of shares, debentures, etc.

Apart from the above-mentioned functions of the bank, the bank provides a whole lot of

other services like investment counseling for individuals, short- term funds management and portfolio

management for individuals and companies. It undertakes the inward and outward remittances with

reference to foreign exchange and collection of varied types for the Government.
Common Banking Products Available:
Some of common available banking products are explained below:
1)
Credit Card: Credit Card is “post paid” or “pay later” card that draws from a

credit line-money made available by the card issuer (bank) and gives one a grace period to pay. If the

amount is not paid full by the end of the period, one is charged interest.

A credit card is nothing but a very small card containing a means of identification, such

as a signature and a small photo. It authorizes the holder to change goods or services to his account, on

which he is billed. The bank receives the bills from the merchants and pays on behalf of the card holder.
25

BANKING SERVICES IN INDIA

These bills are assembled in the bank and the amount is paid to the bank by the card holder totally or by

installments. The bank charges the customer a small amount for these services. The card holder need

not have to carry money/cash with him when he travels or goes for purchasing.
Credit cards have found wide spread acceptance in the ‘metros’ and big cities. Credit

cards are joining popularity for online payments. The major players in the Credit Card market are the

foreign banks and some big public sector banks like SBI and Bank of Baroda. India at present has about

3 million credit cards in circulation.


2)
Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored
value. Debit Cards quickly debit or subtract money from one’s savings account,
or if one were taking out cash.

Every time a person uses the card, the merchant who in turn can get the money

transferred to his account from the bank of the buyers, by debiting an exact amount of purchase from the

card. To get a debit card along with a Personal Identification Number (PIN).

When he makes a purchase, he enters this number on the shop’s PIN pad. When the

card is swiped through the electronic terminal, it dials the acquiring bank system – either Master Card or

Visa that validates the PIN and finds out from the issuing bank whether to accept or decline the

transaction. The customer never overspread because the amount spent is debited immediately from the

customers account. So, for the debit card to work, one must already have the money in the account to

cover the transaction. There is no grace period for a debit card purchase. Some debit cards have monthly

or per transaction fees.


26

BANKING SERVICES IN INDIA

Debit Card holder need not carry a bulky checkbook or large sums of cash when he/she

goes at for shopping. This is a fast and easy way of payment one can get debit card facility as debit cards

use one’s own money at the time of sale, so they are often easier than credit cards to obtain.

The major limitation of Debit Card is that currently only some 3000- 4000 shops

country wide accepts it. Also, a person can’t operate it in case the telephone lines are down.

3) Automatic Teller Machine:The introduction of ATM’s has given the

customers the facility of round the clock banking. The ATM’s are used by banks for making the customers

dealing easier. ATM card is a device that allows customer who has an ATM card to perform routine

banking transaction at any time without interacting with human teller. It provides exchange services. This
service helps the customer to withdraw money even when the banks ate closed. This can be done by

inserting the card in the ATM and entering the Personal Identification Number and secret Password.

ATM’s are currently becoming popular in India that enables the customer to withdraw

their money 24 hours a day and 365 days. It provides the customers with the ability to withdraw or deposit

funds, check account balances, transfer funds and check statement information. The advantages of

ATM’s are many. It increases existing business and generates new business. It allows the

customers.

To transfer money to and from accounts.

To view account information.

To order cash.

To receive cash.
27

BANKING SERVICES IN INDIA


Advantages of ATM’s:
To the Customers

ATM’s provide 24 hrs., 7 days and 365 days a year service.

Service is quick and efficient

Privacy in transaction

Wider flexibility in place and time of withdrawals.

The transaction is completely secure – you need to key in Personal
Identification Number (Unique number for every customer).
To Banks

Alternative to extend banking hours.

Crowding at bank counters considerably reduced.

Alternative to new branches and to reduce operating expenses.

Relieves bank employees to focus an more analytical and innovative work.

Increased market penetration.

ATM’s can be installed anywhere like Airports, Railway Stations, Petrol Pumps, Big

Business arcades, markets, etc. Hence, it gives easy access to the customers, for obtaining cash.

The ATM services provided first by the foreign banks like Citibank, Grind lays bank and

now by many private and public sector banks in India like ICICI Bank, HDFC Bank, SBI, UTI Bank etc.

The ICICI has launched ATM Services to its customers in all the Metropolitan Cities in India. By the end of
1990 Indian Private Banks and public sector banks have come up with their own ATM Network in the form

of “SWADHAN”. Over the past year upto 44 banks in Mumbai, Vashi and Thane, have became a part of

“SWADHAN” a system of shared payments networks, introduced by the Indian Bank Association (IBA).
28

BANKING SERVICES IN INDIA


4)
E-Cheaques: The e-cheaques consists five primary facts. They are the

consumers, the merchant, consumer’s bank the merchant’s bank and the e-mint and the clearing

process. This cheaquring system uses the network services to issue and process payment that emulates

real world chaquing. The payer issue a digital cheaques to the payee ant the entire transactions are done

through internet. Electronic version of cheaques are issued, received and processed. A typical electronic

cheque transaction takes place in the following manner:



The customer accesses the merchant server and the merchant server presents its
goods to the customer.

The consumer selects the goods and purchases them by sending an e-cheque to
the merchant.

The merchant validates the e-cheque with its bank for payment authorisation.

The merchant electronically forwards the e-cheque to its bank.

The merchant’s bank forwards the e-cheque to the clearing house for cashing.

The clearing house jointly works with the consumer’s bank clears the cheque
and transfers the money to the merchant’s banks.

The merchant’s bank updates the merchant’s account.

The consumer’s bank updates the consumer’s account with the withdrawal
information.

The e-chequing is a great boon to big corporate as well as small retailers. Most major

banks accept e-cheques. Thus this system offers secure means of collecting payments, transferring value

and managing cash flows.


29

BANKING SERVICES IN INDIA


5)
Electronic Funds Transfer (EFT): Many modern banks have

computerised their cheque handling process with computer networks and other electronic equipments.

These banks are dispensing with the use of paper cheques. The system called electronic fund transfer

(EFT) automatically transfers money from one account to another. This system facilitates speedier
transfer of funds electronically from any branch to any other branch. In this system the sender and the

receiver of funds may be located in different cities and may even bank with different banks. Funds

transfer within the same city is also permitted. The scheme has been in operation since February 7, 1996,

in India.

The other important type of facility in the EFT system is automated clearing houses.

These are the computer centers that handle the bills meant for deposits and the bills meant for payment.

In big companies pay is not disbursed by issued cheques or issuing cash. The payment office directs the

computer to credit an employee’s account with the person’s pay.


6)
Telebanking: Telebanking refers to banking on phone services.. a customer

can access information about his/her account through a telephone call and by giving the coded Personal

Identification

(PIN) to the bank. Telebanking is extensively user friendly and effective in nature.

To get a particular work done through the bank, the users may leave his
instructions in the form of message with bank.

Facility to stop payment on request. One can easily know about the cheque
status.

Information on the current interest rates.

Information with regard to foreign exchange rates.

Request for a DD or pay order.

D-Mat Account related services.
30


And other similar services.
BANKING SERVICES IN INDIA
7)
Mobile Banking: A new revolution in the realm of e-banking is the

emergence of mobile banking. On-line banking is now moving to the mobile world, giving everybody with

a mobile phone access to real-time banking services, regardless of their location. But there is much more

to mobile banking from just on-lie banking. It provides a new way to pick up information and interact with

the banks to carry out the relevant banking business. The potential of mobile banking is limitless and is

expected to be a big success. Booking and paying for travel and even tickets is also expected to be a

growth area.
According to this system, customer can access account details on mobile using the

Short Messaging System (SMS) technology6 where select data is pushed to the mobile device. The

wireless application protocol (WAP) technology, which will allow user to surf the net on their mobiles to

access anything and everything. This is a very flexible way of transacting banking business.

Already ICICI and HDFC banks have tied up cellular service provides such as Airtel,

Orange, Sky Cell, etc. in Delhi and Mumbai to offer these mobile banking services to their customers.
8)
Internet Banking: Internet banking involves use of internet for delivery of

banking products and services. With internet banking is now no longer confirmed to the branches where

one has to approach the branch in person, to withdraw cash or deposits a cheque or request a statement

of accounts. In internet banking, any inquiry or transaction is processed online without any reference to

the branch (anywhere banking) at any time.


31

The Internet Banking now is more of a normal rather than an exception due to the fact

that it is the cheapest way of providing banking services. As indicated by McKinsey Quarterly research,

presently traditional banking costs the banks, more than a dollar per person, ATM banking costs 27 cents

and internet banking costs below 4 cents approximately. ICICI bank was the first one to offer Internet

Banking in India.
BANKING SERVICES IN INDIA
Benefits of Internet Banking:

Reduce the transaction costs of offering several banking services and diminishes
the need for longer numbers of expensive brick and mortar branches and staff.

Increase convenience for customers, since they can conduct many banking
transaction 24 hours a day.

Increase customer loyalty.

Improve customer access.

Attract new customers.

Easy online application for all accounts, including personal loans and mortgages
Financial Transaction on the Internet:
Electronic Cash: Companies are developing electronic replicas of all existing payment
system: cash, cheque, credit cards and coins.
Automatic Payments: Utility companies, loans payments, and other businesses use on
automatic payment system with bills paid through direct withdrawal from a bank
account.
Direct Deposits: Earnings (or Government payments) automatically deposited into
bank accounts, saving time, effort and money.
Stored Value Cards: Prepaid cards for telephone service, transit fares, highway tolls,
laundry service, library fees and school lunches.
32

Point of Sale transactions: Acceptance of ATM/Cheque at retail stores and restaurants


for payment of goods and services. This system has made functioning of the stock
Market very smooth and efficient.
BANKING SERVICES IN INDIA
Cyber Banking: It refers to banking through online services. Banks with web site
“Cyber” branches allowed customers to check balances, pay bills, transfer funds, and
apply for loans on the Internet.
9)
Demat: Demat is short for de-materialisation of shares. In short, Demat is a
process where at the customer’s request the physical stock is converted into
electronic entries in the depository system.

In January 1998 SEBI (Securities and Exchange Board of India) initiated DEMAT

ACCOUNTANCY System to regulate and to improve stock investing. As on date, to trade on shares it has

become compulsory to have a share demat account and all trades take place through demat.
How to Operate DEMAT ACCOUNT?

One needs to open a Demat Account with any of the branches of the bank. After

opening an account with any bank, by filling the demat request form one can handover the securities. The

rest will be taken care by the bank and the customer will receive credit of shares as soon as it is

confirmed by the Company/Register and Transfer Agent. There is no physical movement of share

certification any more. Any buying or selling of shares is done via electronic transfers.
33

1) If the investor wants to sell his shares, he has to place an order with his broker and give a “Delivery

Instruction” to his DP (Depository Participant). The DP will debit hi s account with the number of shares

sold by him.
2) If one wants to buy shares, he has to inform his broker about his Depository
Account Number so that the shares bought by him are credited in to his account.
3) Payment for the electronic shares bought or sold is to be made in the same way
as in the case of physical securities.
BANKING SERVICES IN INDIA
IV. BANKING SERVICES
Banking covers so many services that it is difficult to define it. However, these basic

services have always been recognized as the hallmark of the genuine banker. These are…

The receipt of the customer’s deposits

The collection of his cheques drawn on other banks

The payment of the customer’s cheques drawn on himself
There are other various types of banking services like:

1) Advances – Overdraft, Cash Credit, etc.

2) Deposits – Saving Account, Current Account, etc.

3) Financial Services – Bill discounting etc.

4) Foreign Services – Providing foreign currency, travelers cheques, etc.

5) Money Transmission – Funds transfer etc.

6) Savings – Fixed deposits, etc.

7) Services of place or time – ATM Services.

8) Status – Debit Cards, Credit Cards, etc.


34

BANKING SERVICES IN INDIA


Customer Services in Commercial Banks:
Customer service is the service provided in support of a bank’s core products.

Customer service often includes answering questions; handling complaints. Customer service can occur

on site (as when an onstage employee helps a customer or answers a question) or it can occur over the

phone or the Internet. Quality customer service is essential to building cordial customer relationship.

Banking being a service industry, a lot depends on efficient and prompt customer

service. Customer service is the most important duty of the banking operations. Prompt and efficient

service with smile will develop good public relations reduce complaints and increase business.
Why is Customer Service Important?
 Changing customer expectations: Today the customer is more demanding and
more sophisticated than he or she was thirty years ago.
 The increased importance of customer service: With changing customer
expectations, competitors are seeing customer service as a competitive weapon
with which they differentiate their products and services.
 The need for a relationship strategy: To ensure that a customer service

strategy that will create a value preposition for customers should be formulated implemented and

controlled. It is necessary to give it a central role and not one that is subsumed in the various elements of

the marketing mix.


35
The customer is the kingpim in growth organizations like commercial banks. Only those

institutions which work according to his dictates will flourish. Quality, Consistency and Durability at low

price are the final expectations of a customer. Quality will have to be unambiguous, of world class quality.

Quality cannot be of minimum acceptable standards. Customer responsiveness must be quick and also

competent. Speed, performance and cost will be the new values “mantra” for success.
BANKING SERVICES IN INDIA
The ten key areas of customer’s services to be attended timely and
regularly are:
i.
Submission of statement of A/Cs to customers
ii.
Updating of savings pass books.
iii.
Teller system efficiency.
iv.
Cleanliness and Upkeep of premises.
v.
Intermediate Credit for institution cheques/land bills.
vi.
Advance intimation to customers for rewards of Term Deposits Receipts on
maturity.
vii.
Advance for Debit/credit to accounts.
viii.
Punctuality of staff.
ix.
Handling of complaint register.
x.
Maintain a complaint register.

Customer’s dissatisfaction in the banking industry is neither recent nor unknown. This is

mainly due to delays in handling transactions across the counter in collections, update of passbooks

supply of statements of accounts, etc.

Failure to provide prompt and efficient customer service is likely to lead to reduction in

the number of customers and they may have to face closure. To event such situation the following

improvements in the customer services may be carried out:

1) Personal relations of the bank employee with customers will improve will improve
customer

satisfaction. 1 service with smile should be the motto of every bank employee.

2) Rapid customer services should be provided through automation of work and

simplification of procedures.
3) ATM’s may be introduced in all the branches of the banks, based upon the

volume of transactions. This shall facilitate non-stop banking.

BANKING SERVICES IN INDIA

4) Credit Cards Services, Debit Card Services, which should be provided to the customers,
must a link service with all the banks and branches if possible to facilitate the customer and
the business organizations.

5) E-mail service made freely available at all banking centers.

6) Foreign Exchange transactions are to be extended to all the branches to facilitate

trade and industries.

7) All the customers are not homogenous in their needs. Hence need based

schemes may be introduced.

8) Totally deregulated interest rate structure should be there.

9) The banking staff must be trained to understand the customer’s psychology, so

they may provide customer service in a qualified manner.

10) Educating the customers will increases better utilisation of banking services.

V. BANK MARKETING:
The banking business is essentially other people’s money and banker’s brain. The

secret of its success lies in satisfying customer needs for which the banks have to rediscover the

marketing concept.

It is right to mention that bank marketing is a managerial process by which services are

matched with markets. The matching of services with market is meant formulation of overall marketing

strategies which suit the taste, temperament, needs and requirements of customers.

In view of the above, marketing of banking services is concerned with product,

promotion, pricing, and place. In addition, it is also concerned with people, process and physical

appearance.
Objectives of Bank Marketing:

 Profitability

 Providing high return on investment

 Achieving certain market share/growth


 Development of an image

 Developing new products to meet emerging customer requirements.

• Increase in deposits and loans

 Directing customers to certain products

 Increasing awareness

 Increasing customer base through greater customer satisfaction.

VI. ROLE OF INFORMATION TECHNOLOGY (IT) IN


THE BANKING SECTOR
Banking environment has become highly competitive today. To be able to survive and

grow in the changing market environment banks are going for the latest technologies, which is being

perceived as an ‘enabling resource’ that can help in developing learner and more flexible structure that

can respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an

instrument of cost reduction and effective communication eith people and institutions associated with the

banking business.

The Software Packages for Banking Applications in India had their beginnings in the

middle of 80s, when the Banks started computerising the branches in a limited manner. The early 90s

saw the plummeting hardware prices and advent of cheap and inexpensive but high powered PC’s and

Services and banks went in for what was called Total Branch Automation (TBA) packages. The middle

and late 90s witnessed the tornado of financial reforms, deregulation globalisation etc. coupled eith rapid

revolution in communication technologies and evolution of novel concept of convergence of

communication technologies, like internet, mobile/cell phones etc. Technology has continuously played on

important role in the working of banking

institutions and the services provided by them. Safekeeping of public money, transfer of money, issuing

drafts, exploring investment opportunities and lending drafts, exploring investment being provided.
Information Technology enables sophisticated product development, better market

infrastructure, implementation of reliable techniques for control of risks and helps the financial

intermediaries to reach geographically distant and diversified markets. Internet has significantly influenced

delivery channels of the banks. Internet has emerged as an important medium for delivery of banking

products and services.

The customers can view the accounts; get account statements, transfer funds and

purchase drafts by just punching on few keys. The smart card’s i.e., cards with micro processor chip have

added new dimension to the scenario. An introduction of ‘Cyber Cash’ the exchange of cash takes place

entirely through ‘Cyber-books’. Collection of Electricity bills and telephone bills has become easy. The

upgradeability and flexibility of internet technology after unprecedented opportunities for the banks to

reach out to its customers. No doubt banking services have undergone drastic changes and so also the

expectation of customers from the banks has increased greater.

IT is increasingly moving from a back office function to a prime assistant in increasing

the value of a bank over time. IT does so by maximizing banks of pro-active measures such as

strengthening and standardising banks infrastructure in respect of security, communication and

networking, achieving inter branch connectivity, moving towards Real Time gross settlement (RTGS)

environment the
40

forecasting of liquidity by building real time databases, use of Magnetic Ink Character Recognition and

Imaging technology for cheque clearing to name a few. Indian banks are going for the retail banking in a

big way

The key driver to charge has largely been the increasing sophistication in technology

and the growing popularity of the Internet. The shift from traditional banking to e-banking is changing

customer’s expectations.\
BANKING SERVICES IN INDIA
E-Banking:

E-banking made its debut in UK and USA 1920s. It becomes prominently popular

during 1960, through electronic funds transfer and credit cards. The concept of web-based baking came

into existence in Eutope and USA in the beginning of 1980.

In India e-banking is of recent origin. The traditional model for growth has been through

branch banking. Only in the early 1990s has there been a start in the non-branch banking services. The

new pribate sector banks and the foreign banks are handicapped by the lack of a strong branch network

in comparison with the public sector banks. In the absence of such networks, the market place has been

the emergence of a lot of innovative services by these players through direct distribution strategies of

non-branch delivery. All these banks are using home banking as a key “pull’ factor to remove customers

away from the well entered public sector banks.

Many banks have modernized their services with the facilities of computer and

electronic equipments. The electronics revolution has made it possible to provide ease and flexibility in

banking operations to the benefit of the customer. The e-banking has made the customer say good-bye to

huge account registers and large

paper bank accounts. The e-banks, which may call as easy bank offers the following
services to its customers:

 Credit Cards – Debit Cards

 ATM

 E-Cheques

 EFT (Electronic Funds Transfer)

 D-MAT Accounts
BANKING SERVICES IN INDIA

 Mobile Banking

 Telephone Banking

 Internet Banking

 EDI (Electronic Data Interchange)


Benefits of E-banking:
 To the Customer:

Anywhere Banking no matter wherever the customer is in the world. Balance enquiry, request for

services, issuing instructions etc., from anywhere in the world is possible.



Anytime Banking – Managing funds in real time and most importantly,
24 hours a day, 7days a week.

Convenience acts as a tremendous psychological benefit all the time.

Brings down “Cost of Banking” to the customer over a period a period
of time.
42


Cash withdrawal from any branch / ATM

On-line purchase of goods and services including online payment for the
same.

To the Bank:

Innovative, scheme, addresses competition and present the bank as
technology driven in the banking sector market

Reduces customer visits to the branch and thereby human intervention

Inter-branch reconciliation is immediate thereby reducing chances of
fraud and misappropriation

On-line banking is an effective medium of promotion of various
schemes of the bank, a marketing tool indeed.

Integrated customer data paves way for individualised and customised
services.
BANKING SERVICES IN INDIA
Impact of IT on the Service Quality:

The most visible impact of technology is reflected in the way the banks respond

strategically for making its effective use for efficient service delivery. This impact on service quality can be

summed up as below:
 With automation, service no longer remains a marketing edge with the large

banks only. Small and relatively new banks with limited network of branches become better placed to

compete with the established banks, by integrating IT in their operations.


 The technology has commoditising some of the financial services. Therefore the
banks cannot take a lifetime relationship with the customers as granted and they have to work

continuously to foster this relationship and retain customer loyalty.


 The technology on one hand serves as a powerful tool for customer servicing,
on the other hand, it itself results in depersonalising of the banking services.
43

This has an adverse effect on relationship banking. A decade of computerization


can probably never substitute a simple or a warm handshake.
 In order to reduce service delivery cost, banks need to automate routine

customer inquiries through self-service channels. To do this they need to invest in call centers, kiosks,

ATM’s and Internet Banking today require IT infrastructure integrated with their business strategy to be

customer centric.
BANKING SERVICES IN INDIA
Impact of IT on Banking System:

The banking system is slowly shifting from the Traditional Banking towards relationship

banking. Traditionally the relationship between the bank and its customers has been on a one-to-one

level via the branch network. This was put into operation with clearing and decision making

responsibilities concentrated at the individual branch level. The head office had responsibility for the

overall clearing network, the size of the branch network and the training of staff in the branch network.

The bank monitored the organisation’s performance and set the decision making parameters, but the

information available to both branch staff and their customers was limited to one geographical location.

Traditional Banking Sector

DIAGRAM 2

Traditional Banking Sector


44
BANKING SERVICES IN INDIA

The modern bank cannot rely on its branch network alone. Customers are now

demanding new, more convenient, delivery systems, and services such as Internet banking have a dual

role to the customer. They provide traditional banking services, but additionally offer much greater access

to information on their account status and on the bank’s many other services. To do this banks have to

create account information layers, which can be accessed both by the bank staff as well as by th

customers themselves.

The use of interactive electronic links via the Internet could go a ling way in providing

the customers with greater level of information about both their own financial situation and about the

services offered by the bank.

The New Relationship Oriented Bank


DIAGRAM 3

BANKING SERVICES IN INDIA


Impact of IT on Privacy and Confidentiality of Data:

Data being stored in the computers, is now being displayed when required on through

internet banking mobile banking, ATM’s etc. all this has given rise to the issues of privacy and

confidentially of data are:


 The data processing capabilities of the computer, particularly the rapid

throughput, integration, and retrieval capabilities, give rise to doubts in the minds of individuals as to

whether the privacy of the individuals is being eroded.


 So long as the individual data items are available only to those directly
concerned, everything seems to be in proper place, but the incidence of data

being cross referenced to create detailed individual dossiers gives rise to privacy
problems.
 Customers feel threatened about the inadequacy of privacy being maintained by
the banks with regard to their transactions and link at computerised systems
with suspicion.

Aside from any constitutional aspect, many nations deem privacy to be a subject of

human right and consider it to be the responsibility of those who concerned with computer data

processing for ensuring that the computer use does not revolve to the stage where different data about

people can be collected, integrated and retrieved quickly. Another important responsibility is to ensure the

data is used only for the purpose intended.


BANKING SERVICES IN INDIA
VII. RECENT TRENDS IN BANKING
Today, we are having a fairly well developed banking system with different classes of

banks – public sector banks, foreign banks, private sector banks – both old and new generation, regional

rural banks and co-operative banks with the Reserve Bank of India as the fountain Head of the system.

In the banking field, there has been an unprecedented growth and diversification of

banking industry has been so stupendous that it has no parallel in the annals of banking anywhere in the

world.

During the last 39 years since 1969, tremendous changes have taken place in the

banking industry. The banks have shed their traditional functions and have been innovating, improving

and coming out with new types of the services to cater to the emerging needs of their customers.

Massive branch expansion in the rural and underdeveloped areas, mobilisation of

savings and diversification of credit facilities to the either to neglected areas like small scale industrial

sector, agricultural and other preferred areas like export sector etc. have resulted in the widening and

deepening of the financial infrastructure and transferred the fundamental character of class banking into

mass banking.

There has been considerable innovation and diversification in the business of major

commercial banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant

banking, leasing, mutual funds etc. A few banks have already set up subsidiaries for merchant banking,

leasing and mutual funds and many more are in the process of doing so. Some banks have commenced

factoring business.
BANKING SERVICES IN INDIA

The major challenges faced by banks today are as to how to cope with competitive

forces and strengthen their balance sheet. Today, banks are groaning with burden of NPA’s. It is rightly

felt that these contaminated debts, if not recovered, will eat into the very vitals of the banks. Another

major anxiety before the banking industry is the high transaction cost of carrying Non Performing Assets

in their books. The resolution of the NPA problem requires greater accountability on the part of the

corporate, greater disclosure in the case of defaults, an efficient credit information sharing system and an
appropriate legal framework pertaining to the banking system so that court procedures can be

streamlined and actual recoveries made within an


48

acceptable time frame. The banking industry cannot afford to sustain itself with such high levels of NPA’s

thus, “lend, but lent for a purpose and with a purpose ought to be the slogan for salvation.”

The Indian banks are subject to tremendous pressures to perform as otherwise their

very survival would be at stake. IT plays an important role in the banking sector as it would not only

ensure smooth passage of interrelated transactions over the electric medium but will also facilitate

complex financial product innovation and product development. The application of IT and e-banking is

becoming the order of the day with the banking system heading towards virtual banking.

As an extreme case of e-banking World Wide Banking (WWB) on the pattern of World

Wide Web (WWW) can be visualised. That means all banks would be interlinked and individual bank

identity, as far as the customer is concerned, does not exist. There is no need to have large number of

physical bank branches, extension counters. There is no need of person-to-person physical interaction or

dealings. Customers would be able to do all their banking operations sitting in their offices or homes and

operating through internet. This would be the case of banking reaching the customers.
BANKING SERVICES IN INDIA

Banking landscape is changing very fast. Many new players with different muscle

powers will enter the market. The Reserve Bank in its bid to move towards the best international banking

practices will further sharpen the prudential norms and strengthen its supervisor mechanism. There will

be more transparency and disclosures.

In the days to come, banks are expected to play a very useful role in the economic

development and the emerging market will provide ample business opportunities to harness. Human

Resources Management is assuming to be of greater


49

importance. As banking in India will become more and more knowledge supported, human capital will

emerge as the finest assets of the banking system. Ultimately banking is people and not just figures.
VIII. STRAINS AND CHALLNGES
Liberalisation process has increasingly exposed Indian Industry to international

competition and banking being a service industry is also not an exception. Banking Sector in India too

faces same strains and challenges at local, national and international level.
50

Indian Banks, functionally diverse and geographically widespread, have played a crucial

role in the socio-economic progress of the country after independence. However, the growth led to strains

in the operational efficiency of banks and the accumulation of non-performing assets (NPA’s) in their loan

portfolios.

Banks face increasing pressure to stand out from the crowd. On the Internet, this

means offering your target customers an increasingly broader range of services than your competitors

and that too in unique way.

All this has resulted in a challenge to managers of banks to develop the right mix of

acquired and internally grown IT applications which suits customer’s expectations.

Banking sector reforms and liberalisation process raised many challenges before Indian

Banks and for sustainable development it has become necessary to face these challenges effectively:
 Intense Competition: The RBI and Government of India kept banking industry

open for the participants of private sector banks and foreign banks. The foreign banks were also

permitted to set up shop on India either as branches or as subsidiaries. Due to this lowered entry barriers

many new players have entered the market such as private banks, foreign banks, non-banking finance

companies, etc. The foreign banks and new private sector banks have spearheaded the hi-tech

revolution. Heavy weight foreign banks with huge


BANKING SERVICES IN INDIA

base, latest technology innovative and globally tested products are spreading their wings and wooing

away customers form other banks. For survival and growth in highly competitive environment banks have

to follow the new “Guru Mantra” of prompt and efficient customer service, which calls for appropriate

customer centric policies and customer friendly procedures.


51

 Technological Up gradation: Already electronic transfers, clearings,


settlements have reduced translation times. To face competition it is necessary
for banks to absorb the technology and upgrade their services.

However use of High-Tech sophisticated technology leaves the predominantly rural, poor and even

illiterate mans in the lurch to which the level of automation and efficiency of services are immaterial.
 Privacy and Safety: Among the most important aspects, of savings, i.e., safety

liquidity and profitability, safety has to be accorded top most priority. The safety aspect assumes more

significance in the emerging scenario as the economic loss caused internationally by these types of

crimes might risk area and any lacunae is safety would result in erosion of confidence and the same

might possibly paralyse the entire network. The areas among other things, which might endanger security

in e-banking can be:


 Changes in input data such as changing the amount in ledges, increasing

the limits in accounts or face value of cheaques. Though these trends could be detected consequently,

prevention is a major problem with these types of crimes.


 Use of stolen or falsified cards in ATM machines.
BANKING SERVICES IN INDIA

Computer forgery could be committed by way of gaining access to other account, deliberate

damage through viruses on data stored in computers. In this case, same criminals might gain entry into

the computers and cause damage to the system. This apart, another through
52

which security and privacy are maintained. If a hacker has found out the password, he can cause havoc

to the entire network. Also, if the password is stolen money could be transferred from one account to

another.

Software privacy is another area of potential danger faced by the banking industry. In this the

entire software could be stolen. If this is done, the hackers could operate a parallel network.

Human Resources Management: In the recent past the

human resource Policies in banks were mainly guided by the comcept of permanent employment and its

necessary concomitants of creating career paths, terminal benfits, etc. for the employees. In today’s fast-

changing world of employee mobility both horizontally and vertically and value systems, the public sector

banks need to hire the right talent at market related compensation and to shed surplus manpower/staff.
Thus many banks are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS

are going to change the nature of workforce with many senior and experienced persons opting for it.

The key elements that shall provide a competitive edge to banking sector will not be physical assets but

knowledge assets and information. Therefore, banks must understand how to retain knowledge based

employees and prevent them to migrating to some other organisation. Banks must believe in people,

customer orientation, and continuous improvement of excellence. Therefore it becomes necessary for

banks to encourage all employees to take risks and work towards continuous improvements and

breakthroughs.
BANKING SERVICES IN INDIA

Successful banks overcoming the challenges will be those that harness technology in a customer friendly

yet cost effective way. This requires enormous internal and external management and the crux of the

solution lies in blending human resources with information technology.

Pune Banks

Pune Multinational Banks


Pune Banks engaged in commercial activities add
up to almost 300 branches. State Bank of India with its Pune being an important cultural and commercial city
associate banks, Bank of India, Bank of Maharashtra, has a number of multinational commercial bank
Union Bank of India, Oriental Bank of Commerce, Bank branches. These include:
of Baroda, and Vijaya Bank operate through multiple
branches. In addition to the nationalized commercial • ABN Amro Bank, KPCT Mall, Wing A, 3rd
floor, Fatima Nagar, Pune - 411 040
banks, Pune also has branches of Multinational banks,
and private Indian banks. • Citibank in 2413 Kumar Capital, East Street,
Pune Nationalized Banks Camp, Pune - 1
Pune has multiple branches of nationalized commercial • HSBC Bank in Pradeep Chambers,
banks. Some of the important banks in Pune along with Bhandarkar Road, Pune - 411 004
their branches are: Pune Private Banks
• State Bank of India, Senapati Bapat Branch, In addition to nationalized and multinational banks,
Senapati Bapat Marg, Pune - 411 004 Indian private banks also do substantial business in
Pune. Some of the notable branches are:
• State Bank of India, Treasury Branch,
Collector Office Compound, Sasoon Road,
Pune - 1
• IDBI Bank, Erandwane Branch, 27/1
Yogeshwari Apartment, Ganeshnagar, Pune -
• State Bank of India, University Branch, 411 004.
University Road, Pune - 411 007
• Syndicate Bank, Khare Wada 2nd fl., 712
• Bank of Maharashtra, Karve Road Branch, Laxmi Road, Narayan Peth, Pune - 411 030
Karve Road Deccan, Pune - 411 004
• Indus India Bank Limited, 2401 East Street,
• Bank of Maharashtra, Sadashiv Peth Branch, Camp, Pune - 411 001
S P College Compound, Pune - 411 030
• HDFC Bank, Laxmi Road Branch, 344/1 Aditi
• Oriental Bank of Commerce, Viman Nagar Apartments, Narayan Peth, Pune - 411 030
Branch, 199 Lunkad Tower, Near Ganesh
Temple, Viman Nagar, Ganapati Chowk,
• ICICI Bank Limited, 46 Somshank Chambers,
1, Pune Satara Road, Pune - 411 009
Pune - 411 014
• Bank of Baroda, Aundh Gen Next Branch,
• Federal Bank, 1276 Jangali Maharaj Road,
Jangali, Pune - 411 004
Adams Court, Aundh Baner Road, Baner,
Pune - 45 Pune Banks also have set up ATMs in different
• Bank of India, Bhavani Peth Branch, 224 strategic locations for the convenience of theie
Kalpataru Plaza, Bhavani Peth, Pune - 411 customers, and travelers.
042
• Vijaya Bank, Khadki Branch, Khadki, Pune -
411 003

PREFACE
Without a sound and effective banking system in India it cannot have a healthy
economy. The banking system of India should not only be hassle free but it should be
able to meet new challenges posed by the technology and any other external and
internal factors.
For the past three decades India's banking system has several
outstanding achievements to its credit. The most striking is its extensive reach. It is no
longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking
system has reached even to the remote corners of the country. This is one of the main
reasons of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich
dividends with the nationalisation of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for
getting a draft or for withdrawing his own money. Today, he has a choice. Gone are
days when the most efficient bank transferred money from one branch to other in two
days. Now it is simple as instant messaging or dials a pizza. Money has become the
order of the day.
Banking in India originated in the last decades of the 18th century. The oldest
bank in existence in India is the State Bank of India, a government-owned bank that
traces its origins back to June 1806 and that is the largest commercial bank in the
country. Central banking is the responsibility of the Reserve Bank of
India, which in 1935 formally took over these responsibilities from the then
Imperial Bank of India, relegating it to commercial banking functions. After India's
independence in 1947, the Reserve Bank was nationalized and given broader powers.
In 1969 the government nationalized the 14 largest commercial banks; the government
nationalized the six next largest in 1980

10- Summery of the project……………………………


11- Bibliography………………………………………………..
RBI
RBI does the currency management
that's not only the talent,
it also regulate and supervise the monetary system
which is done by banks and other institution.
On the establishment of RBI was the main object
credit control and currency management,
RBI issue the notes on the basis of Minimum reserve system
there is Gandhiji's portrait on the note as an emblem.
Notes are printed by RBI
and coins are minted by GOI,
but distribution is done by RBI of both
so why the monetary system growth.
Notes are printed at its presses
and then sent to RBI offices,
RBI gives it direct to the public and by currency chest(cc)
and the cc also gives it to other bank branches.
The consignment of notes is recd.
by two joint custodians from press representative,
and then kept in vault after weighting
where security with cc camera is performing.
Notes and coins on counters are exchanged
by the public and bank claim